Nobel economist Paul Krugman says he's 'terrified' about the potential fallout from a US debt default - but isn't worried about credit downgrades

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Nobel economist Paul Krugman says he's 'terrified' about the potential fallout from a US debt default - but isn't worried about credit downgrades
Princeton economics and international affairs professor Paul Krugman listens during his introduction as the 2008 Nobel prize winner in economics at a new conference on the campus of Princeton University in Princeton, New Jersey.Reuters/Tim Shaffer
  • Paul Krugman said he's "terrified" about the potential consequences of a US debt default.
  • At the same time, the Nobel economist suggested he's not worried about potential action by credit-rating agencies.
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Nobel economist Paul Krugman said he's "terrified" by the potential fallout from a US debt default - but isn't worried about credit downgrades.

"Since there's a lot of buzz about possible rating agencies downgrading US debt, a reminder about what happened in 2011. See the big impact? Neither do I," Krugman said in a tweet, accompanied by a chart showing the yield on 10-year US Treasury bonds throughout 2011.

"I'm terrified about the possible implications of actual default. But the rating agencies are just irrelevant," he added.

Krugman's comment comes after ratings agency Fitch put the US's credit on watch for a possible downgrade, given Congress has still not decided whether it will raise the debt ceiling - despite the risk that the government could run out of money in a matter of days.

Fitch cited political "brinkmanship" over the debt-ceiling standoff as one of the key factors that's putting the US's AAA credit rating in jeopardy.

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"We believe risks have risen that the debt limit will not be raised or suspended before the X-date, and consequently that the government could begin to miss payments on some of its obligations," Fitch said in a statement.

Fears of a US debt default have been rising, with Treasury Secretary Janet Yellen warning of grave consequences if policymakers don't act fast.

Krugman has previously commented on the debt ceiling, saying the possibility of a default is very real while calling for the ceiling to be outright abolished.

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