Morgan Stanley Warns The Economy Is At 'DEFCON 3' Because Of Debt Ceiling

We have now reached the stage of the looming debt-ceiling crisis in which everybody starts making threat-level awareness charts.

Morgan Stanley economists on Wednesday announced that they were taking the economy to "DEFCON 3," saying there is a rising risk that House Republicans' refusal to raise the government's borrowing limit could cause real economic damage, as markets worry about the potential for a catastrophic debt default. (h/t Business Insider)

defcon 3

It's a riff on the U.S. military's "defense readiness condition," or DEFCON, made famous in the movie "War Games." (Story continues after video.)

On Morgan Stanley's DEFCON scale, a "5" represents total complacency about the risks of a debt-ceiling crisis hurting the economy, while a "1" means "economic demise is imminent." A "3" means they see "nascent signs of financial stress, and jitters are on the rise."

Meanwhile, the Washington Post's Wonkblog has been putting together its own handy doom-meter called the Daily Default Dashboard, using quantifiable market measures such as stock prices and bond yields. On Wednesday the Wonks raised their threat level to "Getting Kind Of Scary," their own version of DEFCON 3.


Markets are still relatively calm, considering. The market's so-called "fear gauge," the Chicago Board Options Exchange volatility index, or VIX, has risen to its highest level since those terrifying days of June. If you don't remember what was so terrifying about June, you're not alone. It's a sign there's still not very much fear in the market. The VIX is still far away from where it was during the last debt-ceiling crisis in the fall of 2011. But we're getting there.




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