White House warns of grave consequences if US defaults on its debt

By Al Mayadeen English
Source: Agencies
4 May 2023 10:33
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The stock market could plummet to 45 percent in the third quarter this year, as per a White House analysis.

The US Treasury Department building seen at dusk, June 6, 2019, in Washington (AP)

The President's Council of Economic Advisers (CEA), a federal agency led by a team of experts, issued a report on Wednesday warning of the possible consequences that would ensue from the US defaulting on its debt payments.

One of the consequences listed in the report includes a series of economic shocks that would result in 8 million job losses this year's summer, as well as a 6% drop in GDP.

It further warned that the stock market could plummet to 45% in the third quarter of this year.

Even a delay in payments would result in an increase in unemployment as the economy heads head-first into recession, the CEA pointed out.

Today, CEA published a blogpost highlighting new analysis on the potential economic consequences of the Federal government defaulting on its debt obligations. 1/ https://t.co/CXs0PLsuvg
— Council of Economic Advisers (@WhiteHouseCEA) May 3, 2023

Democrats and Republicans have been sparring for months over national spending and the public debt.

US President Joe Biden has requested Republicans to raise the debt ceiling, but Republicans in the House said they will refrain from doing so unless an agreement to cut government spending is laid out.

As lawmakers struggle over raising the borrowing limit, Treasury Secretary Janet Yellen warned on Monday that the US is threatened by a debt default as soon as the start of June.

For long, the US has enjoyed considerable privilege with regard to the deliberate raising or suspending of the debt ceiling.

It was only during the Obama administration that Republicans started to give greater consideration to questions about the public debt and national spending.

In January, after the US maxed out its borrowing limit at $31.46 trillion, the US Treasury announced launching "extraordinary measures" to prevent defaulting on debt. Yellen then decided that the Treasury would temporarily suspend payments that aren't urgent and divert the money for more pressing needs i.e. services needed to keep the government operating.

The Congressional Budget Office (CBO) warned in February that the government could exhaust its funds by July - the final date to decide on the matter - leading to a default on American debt unless Congress raises the current debt ceiling.