Forget the current government shutdown. Economists say it’s the upcoming debt ceiling impasse that could plunge the United States into a recession. About half of the 22 economists surveyed by CNN Money say a recession will be unavoidable if Congress fails to raise the nation’s debt ceiling before the Treasury runs out of cash later this month.

 

A couple more say a recession is possible depending on how far past the deadline Congress goes before acting. And even those who aren’t predicting recession say not raising the debt ceiling would be a very bad idea.

 

“Financial markets are already being impacted in the short-run as a result of heightened uncertainty,” said Sean Snaith, director of the Institute for Economic Competitiveness at the University of Central Florida. But he said there would be greater long-term damage due to the spending cuts that would occur.

 

“The fiscal shock treatment of having to eliminate the deficit in one fell swoop would reduce GDP by more than 5% and cause a severe recession,” he said.

 

The Treasury Department has also been sounding the warning bells about the debt ceiling. In a report Thursday, Treasury said failure to raise the limit would have a “catastrophic effect” on the economy, sparking an even deeper recession than the 2008 downturn that accompanied the meltdown in financial markets.

 

The economists agree the threat posed by not raising the debt ceiling is significantly greater than that posed by the federal government shutdown that started Tuesday. None predicted a recession being caused by the shutdown alone.

 

“A short to medium duration partial shutdown is not enough to cause recession,” said Sam Bullard, economist with Wells Fargo Securities.

 

But if the debt ceiling isn’t raised, the economists have many different worries, including disruptions in financial markets, followed closely by a loss of confidence in the dollar and Treasuries and very deep cuts in government spending.

 

“No one can know for sure exactly what would happen in the event of a default, but we can all be sure that it would be bad,” said Russell Price of Ameriprise Financial.

 

Even those economists who aren’t predicting a recession are worried about the risks posed by the debt ceiling.

 

“Merely missing the debt ceiling deadline will not trigger a recession, but the risks will rise rapidly with each week after the deadline passes,” said Patrick O’Keefe, director of economic research at accounting firm Cohn Reznick.

 

Some of the economists believe if Congress doesn’t raise the debt ceiling then the administration will act unilaterally. That might cause a constitutional crisis but they believe it would avoid a financial crisis.

 

“My expectation in this scenario is that the President finds a sufficiently plausible constitutional rationale to ignore the debt ceiling and keep on meeting all US Federal obligations on time with no exceptions,” said Bill Cheney, chief economist with Manulife Asset Management.

 

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US Debt Crisis Threatens World Economy: IMF

Terming the current debt crisis in America as “mission-critical”, the International Monetary Fund has warned the US that its impending debt crisis could damage not only its domestic economy, but the entire global economy. “The ongoing political uncertainty over the budget and the debt ceiling does not help. The Government shutdown is bad enough, but failure to raise the debt ceiling would be far worse, and could very seriously damage not only the US economy, but the entire global economy,” the IMF Managing Director, Christine Lagarde, said on Thursday. “So it is “mission-critical” that this be resolved as soon as possible,” Lagarde said in her address to the George Washington University. The United States, she said, needs to “slow down and hurry up.” By that she meant less fiscal adjustment today and more tomorrow, she added.“That means replacing the sequester with more back-loaded measures that do not hurt the recovery. At the same time, the US needs to do more to make debt sustainable down the road — by containing the growth of entitlement spending and raising revenues,” Lagarde said.