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Millions of jobs lost and a catastrophic stock market crash: this could happen if there is no agreement on the debt ceiling

2023-05-04T15:40:37.342Z


Even "risking" delaying the pact between the White House and the Republicans in Congress until the end could have very negative consequences for families and the economy.


By Kayla Tausche —

NBC News

The White House published a new calculation on Wednesday warning of the potential damage to the economy and families in the United States in the event that a political agreement to raise the debt ceiling is not reached and payments are suspended in early June.

In a post on Wednesday advanced by NBC News, the White House Council of Economic Advisers identified three scenarios of varying severity:

"policy brinkmanship

," in which negotiations drag on until the June 1 deadline set by the Treasure ;

a

"brief" default

, where the deadline is missed but then resolved within a week;

and a

“prolonged” default

, in which the United States fails to raise its debt levels for more than a quarter. 

A prolonged default, according to the CEA, would cause a catastrophic scenario similar to that of the Great Recession, in which 8.3 million people would lose their jobs and the stock market would fall by up to 45%.

They warn that the US could default on its debt on June 1 if Congress does not act

May 1, 202300:25

A brief default would cause the

loss of 500,000 jobs

and an increase in unemployment of 0.3%.

And even bringing negotiations to the brink would risk 200,000 job losses and a 0.1% rise in unemployment. 

In all scenarios the economy would contract (from 0.3% to 6.1% depending on the case) and could fall into a recession that would be even more painful because "policy options to help cushion the impact on households and businesses would be limited ”.

Federal and state unemployment benefits would not be expanded, and borrowing costs for consumers and the government could skyrocket, increasing the burden on taxpayers.

The Brookings Institution, a Washington DC think tank, estimates that the crisis could raise the cost of public debt by as much as $750 billion.

When asked to assess the impact, Federal Reserve Chairman Jerome Powell refused to accept that either scenario was possible.

“I don't think we should be talking about a world where the United States doesn't pay its bills.

It just shouldn't exist,” Powell told reporters at a news conference after the Federal Reserve raised interest rates.

And he claimed that the tools at his disposal could not mitigate the effects. 

Despite the fact that the unemployment rate in March fell, the creation of new jobs decreased

April 7, 202301:50

"No one should assume that the Fed can actually protect the economy and the financial system and our reputation globally from the damage that such an event could inflict," he said. 

The Council of Economic Advisers is the Cabinet-level economic forecasting agency of the White House.

Their conclusions are based in part on research by Mark Zandi, an economist at the financial analysis firm Moody's.

Source: telemundo

All news articles on 2023-05-04

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