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Desperate for a deal: Economists say Congress is playing with fire

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(10/14/13) - The nation is just three days away from hitting the debt ceiling. Americans are showing their frustration at rallies, and the financial markets are jittery.

"People say this is crazy to take this chance. We don't know what is going to happen, but it's going to be bad. It could be catastrophic," said Ron Haskins, senior fellow at the Brookings Institution. "Nobody knows for sure because it's never happened, at least fully."

Haskins is an economist at the Brookings Institution, and he worked in Congress during the government shutdown in the 1990s.

He says members of Congress are playing with fire.

"They are playing with a nuclear weapon. It's not prudent, it's foolish and it would have huge consequences…they are definitely playing with fire," he said.

The debt ceiling, should it be breached this Thursday, will likely result in a spike in interest rates on home loans, car loans, and student loans. Consumers may also feel a credit squeeze, and a hit to investments, including to 401K retirement plans.

Right now, the Treasury Department pays more than 100 million bills every month, but if lawmakers working at the Capitol do not agree to raise the debt limit in time, the Treasury will not be able to pay about one third of its bills.

"They need to get to the short-term in like an hour," Haskins said.

But, Haskins advised, the short term is not the only real problem.

"Republicans refuse to increase taxes, and Democrats refuse to have cuts in entitlements," he said. "So as long as that's the case, we are not going to make progress."

And it's progress that is desperately needed inside a political world full of partisan bickering, short-term fixes, and hasty deals that consistently come in too close to the deadline.

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