The Obama administration said the U.S. economy could fall into its deepest crisis since the Great Depression if Congress does not raise a cap on government borrowing soon and warned it would be impossible to prioritize debt payments over other obligations.
In a report released on Thursday, the Treasury Department said a U.S. debt default could force up borrowing costs, weaken investment and curb growth. This could inflict damage on the economy that could last for longer than a generation.
"A default would be unprecedented and has the potential to be catastrophic," Treasury said.
"The negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse."
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A standoff over financing, prompted by Republicans' determination to halt President Barack Obama's health-care reforms, has already shut down sections of the government.