Risk of a default on Treasury debt rising by the hour

With the risk of a default on Treasury debt rising by the hour, the relative indifference among Wall Street, businesses and consumers to the political dogfight in Washington is shifting to high anxiety. Attitudes are less Meh, been there, done that, and more: OMG, this could be for real!

The level of uncertainty is on the rise, according to an index created by Stanford University economists who track the impact of policy uncertainty on business and the economy.

It is a sharp reversal. Until this week, the level of uncertainty had been lower than it's been for much of the last two decades, But the index is rising fast-and that could spell trouble for any already weak economy in the months ahead if the level of uncertainty continues to rise.

"In August, everyone was asleep and Congress was out, and in September things were left until pretty late in the game," said Nicholas Bloom, one of the creators of the Economic Policy Uncertainty Index. "But the daily index has been surging" in the days leading up to Tuesday's government shutdown, he said.

Until the reality of that government shutdown began to sink in, the index had been languishing, far below peak levels reached in July 2011, when petty partisan bickering over the debt ceiling sent the Treasury to the brink of default.

That recent relative calm about the prospect of budget chaos may have resulted from a deepening numbness to "fiscal cliff" foolishness and "sequestration" stupidity. Bloom likens the response to a kind of fiscal roller coaster ride.

"Once you have survived a couple of these, the next one seems much less scary," said Bloom. "On a roller coast, as you climb the first hill you have a huge fear ahead of what going to happen. But after you've been through two or three, the fourth one isn't so scary. That's what happening now. We've kind of become accustomed to this." Read more >>