If the debt limit wasn't raised through November, Goldman Sachs estimates that government spending would be cut $175 billion. That's equivalent to about 1 percent of the economy.
On top of that, stock markets would likely fall. Household wealth would shrink. Consumer confidence could plunge. Americans would cut back on spending. Higher rates on government debt would raise other borrowing costs, including mortgage rates.
Q. Isn't the fight over the debt limit about an out-of-control budget deficit? Doesn't government spending need to be cut?
A. This year's deficit will likely be the smallest in five years, thanks to higher tax revenue and government spending cuts. The CBO projects that the deficit will be $642 billion for the budget year that ended Sept. 30. Though still large by historical standards, that compares with the four previous years of $1 trillion deficits. Many economists think it's healthier for spending cuts to be made gradually — rather than from a huge and immediate cut of the kind that would follow a breached debt limit.