Ryan Avent warns Washington that because "failure to raise the debt ceiling would be so nasty, that very possibility could cause serious economic damage even if the odds of an actual default never approach 50%":
Markets try to prepare for trouble. If there's a chance of bad times ahead, market participants will take precautions, just in case. They may move money to safer assets, increase cash holdings, curtail marginal investments, put off hiring, and so on. Do you see the problem? These sensible measures are themselves bad for the economy. Now, the probability of an actual default isn't very high. But the cost of default is catastrophic. So even if the odds of default shift from very small to slightly less small—from say 2% to 5%—that shift represents a substantial increase in the potential economic downside looking forward. And that, in turn, could lead to greater precautionary measures from banks, businesses, and households.
I'm already looking at my retirement savings and wondering whether I should rely on Washington to destroy them. Either side that digs in and refuses to compromise is threatening to wipe out your savings. Why aren't more Americans awake?
The Dish 