House Republicans were cautioned Thursday in a closed door meeting with credit rating agency officials that a “death spiral” in the bond market was one of the possible outcomes in the event of default. One official warned of a worst-case scenario in which a default on the nation’s credit could result in a rapid drop in bond values, sparking chaos in the markets — a dramatic warning as Washington worked on a possible deal on deficit reduction and an increase in the debt limit.
Members who attended the meeting later countered that the tone of the discussion was not nearly as apocalyptic as the phrase initially made it sound. According to sources inside the room, the “death spiral” term was also used in reference to the collapse of Lehmann Brothers in September 2008 as a historical example.
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