White House Warns Of Loss Of 8 Million Jobs & Stock Market Crash If US Defaults On Debt Next Month
The US is inching closer towards a possible debt default as soon as on June 1st 2023, which would be economically devastating and could plunge the entire world into a financial crisis, economists and Wall Street analysts have warned.
The US is inching closer towards a possible debt default as soon as June 1, 2023, which would be economically devastating and could plunge the entire world into a financial crisis, economists and Wall Street analysts have warned.
Risk Of 8 Million Job Losses & Stock Market Crash
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The White House economists warned yesterday that a debt default would cause the loss of more than 8 million jobs and a stock market crash. The new projections, published in a blog post by the White House Council of Economic Advisers, make clear the enormous stakes behind a potential breach of the debt ceiling.
The White House economists say the worst-case scenario is a ¡°protracted¡± default that wipes out 8.3 million jobs, plunges GDP by 6.1 percentage points and sends the stock market crashing nearly in half. The unemployment rate, in that situation, would spike by five percentage points.
¡°A protracted default would likely lead to severe damage to the economy, with job growth swinging from its current pace of robust gains to losses numbering in the millions,¡± the White House economists said, as per CNN.
US Govt Could Run Out Of Cash By June 1
Treasury Secretary Janet Yellen said the US could default on its debt as soon as June 1 if Congress doesn¡¯t act.
AP
A Reuters report mentioned that the U.S. economy could also be sent into recession even if a debt default isn¡¯t triggered, as per analysts. The US government's total spending on average is about $525 billion a month. A big chunk of that, about $225 billion on average in the first quarter, is deficit spending.
The United States officially hit its debt limit on January 19, 2023, prompting the Treasury Department to use accounting manoeuvres known as extraordinary measures to continue paying the government¡¯s obligations and avoid a default. Those measures temporarily curb certain government investments so that the bills can continue to be paid, as per the New York Times report.
That ability to use those measures to delay a default could be exhausted by June 2023. Treasury Secretary Janet L. Yellen had said while warning lawmakers that the United States could run out of cash by June 1 if the borrowing cap isn¡¯t raised or suspended.
The US Has $31 Trillion In National Debt
The national debt crossed $31 trillion for the first time last year. The borrowing cap is set at $31.381 trillion.
reuters
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While the debt limit was reportedly created to make government run more smoothly, many policymakers believe that it has become more trouble than it¡¯s worth. In 2021, Ms Yellen said she supported abolishing the debt limit.
If the government exhausts its extraordinary measures and runs out of cash, it would be unable to issue new debt. That means it would not have enough money to pay its bills, including interest and other payments it owes to bondholders, military salaries and benefits to retirees.
And if the United States gets to that point, the government could default on its debt if it is unable to make required payments to its bondholders.
3 Possible Scenarios For US Economy
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The report estimates the impact under three scenarios: brinksmanship, a short default and a protracted default.
Even a brinksmanship scenario, where a default is avoided, would wipe out 200,000 jobs and knock 0.3 percentage points off the annual gross domestic product, according to the Biden administration.
In a short default, the economy would suffer the loss of about half a million jobs and the unemployment rate would rise by 0.3 percentage points.
And the worst-case scenario is a ¡°protracted¡± default that wipes out 8.3 million jobs, plunges GDP by 6.1 percentage points and sends the stock market crashing nearly in half. The unemployment rate, in that situation, would spike by five percentage points. A White House spokesperson, as per CNN report, said the protracted default scenario envisions a three-month-long impasse.
The White House projections are similar to ones made by Moody¡¯s Analytics, which warned last month in March that a lengthy default could cost more than 7 million jobs.
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