If the US exceeds the national debt limit, the country will default on it, according to analysis by the Treasury Department and the Congressional Budget Office. Material published On the White House website.
The United States is fast approaching the date when the government can no longer pay its bills, also known as the “X date.”
– says the article.
It was noted that if the US economy falls into a short-term default or is on the verge of the beginning of balances, the consequences will not be disastrous. That is, probably the number of jobs will decrease by 200-500 thousand, and GDP will decrease by 0.3-0.6%, unemployment will increase by 0.1-0.3%.
However, if a full-fledged default does occur, it “would seriously hurt the economy, with the job growth rate turning from current strong gains to million-dollar losses.” Therefore, experts predict that in the event of a major default, the number of jobs could be reduced by 8.3 million and GDP would decrease by 6.1% on an annual basis. Unemployment will increase by 5%. At the same time, the stock market will drop 45%.
The authors of the analysis argue that a possible default on public debt could nullify all the successes of President Joe Biden’s administration at a time when the U.S. economy is showing its lowest unemployment rate in 50 years and creating 12.6 million new jobs.
The state of the economy could severely impact the small businesses that Treasury and Congress analysts have hoped for. Thus, the risks from default will cause a sharp increase in interest rates on loans and other financial instruments.
The document also provides Moody’s analytics data. Using a different macroeconomic model, they came to similar conclusions: an increase in the public debt limit could create 900,000 jobs in the next few quarters, but in the case of a prolonged default, losses could mean about 8 million jobs. They think that with a short-term default, unemployment will rise to 5% and 5 million jobs will be lost.
The analysis also cites data from the Paterson Institute’s analysis, which follows that the decline in demand for treasury bonds due to the default will weaken the dollar’s role in the global economy:
“Weak dollar buying will increase exchange rate volatility against other currencies and reduce liquidity, prompting investors to reduce dollar holdings in any form.”
Washington reached its national debt cap in January, at $31.4 trillion. The White House demands that Congress raise the national debt limit without any conditions. Congress is considering a bill that would increase the debt limit by $1.5 trillion but reduce government spending by $4.5 trillion. Republicans presented the plan, Democrats do not support it. White House press secretary Karine Jean-Pierre thought President Joe Biden would not sign such a law, while Senator Chuck Schumer called the project “dead.”
On May 2, US Treasury Secretary Janet Yellen warned that the public debt problem must be resolved as soon as possible otherwise the government will probably not be able to continue meeting all its obligations until June 1.