The report estimated the impact of a potential breach of the debt ceiling under three scenarios: brinksmanship, a short default, and a protracted default.
The White House Council of Economic Advisers published a blog post that warned a protracted debt default would lead to the loss of more than 8 million jobs and cut the stock market in half
Even if a brinksmanship scenario, where default is avoided, the Biden administration believes it would wipe out 200,000 jobs and knock 0.3 percentage points off the annual gross domestic product. 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.
The worst-case scenario would be 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 would spike by five percentage points in that situation.
A White House spokesperson said the protracted default scenario envisions a three-month-long impasse
Treasury Secretary Janet Yellen warned the US could default on its debt as soon as June 1 if Congress doesn’t act. The White House economists said, “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 projections align with Moody’s Analytics, which warned in March that a lengthy default could cost more than 7 million jobs.
The report highlights the enormous stakes behind a potential breach of the debt ceiling. It also underlines the importance of Congress raising or suspending the debt ceiling before the US breaches it.
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