WALL STREET (PIX11)—The stock market has not taken a huge hit in the midst of the debt ceiling impasse -- in fact, it's down less than two percent from its 2011 peak. Ironically, though, that may be a reason for concern.
Despite some jitters, the market has stayed relatively calm since May, when the U.S. government first reached its debt ceiling. The reason for the stability is that markets worldwide assume that congress and the president will come up with some sort of plan to prevent the country from defaulting on its loans before next Tuesday's deadline.
The markets are often right. But when they're wrong, it can be a catastrophe. To see just how severe the catastrophes can be, just rewind three years. That's when Lehman Brothers, the world's fourth largest investment bank, crashed.
It was the largest bankruptcy filing in U.S. history, but prior to it happening, few on Wall Street thought the federal government would let Lehman fail. But fail it did, and the financial crisis began, and we still haven't fully recovered. If a default were to happen next week in addition to the already weakened economy, it would soil the country's sterling credit rating and could mark the beginning of the end of the United States' reputation as the world's most solid economy.
For many Americans, it could mean less money to spend. A default means that the government cannot pay all of its bills including, perhaps, Social Security and Medicare payments, as well as paychecks for the government's 2.7 million employees.
Less disposable income could be disastrous for the economy, 70 percent of which is made up of consumer spending. A significant reduction in retail sales could drag down the economy as a whole.