The White House has issued a warning about the potential consequences of the United States defaulting on its debt payments, as Democrats and Republicans continue to grapple over national spending.
The president’s Council of Economic Advisers has cautioned that if the US government fails to meet its financial obligations, it could result in economic shocks that would lead to a six percent drop in GDP and the loss of eight million jobs this summer. Moreover, the stock market could plummet by up to 45 percent in the third quarter.
The economists further explained that even a brief interruption in payments could cause unemployment to rise as the economy falls into a recession. President Joe Biden is currently clashing with Republicans in the lower chamber of Congress over national spending and public debt. While the Democratic president has requested that Republicans raise the country’s debt ceiling, Republicans in the House of Representatives have refused to do so unless there is an agreement to cut government spending.
However, time is running out, and the Treasury Department anticipates that the US will hit its debt cap on June 1st, resulting in significant cuts in government spending, including debt payment. Suspending or raising the debt ceiling, which is unique to the US, was traditionally considered a formality while more extensive issues about public debt and national spending were resolved behind the scenes.
During Barack Obama’s presidency, Republicans began to adopt a tougher stance, using the vote as a political bargaining chip. Although the US technically hit its debt ceiling in January, which stands at over $31 trillion, the government has been able to navigate around it using several accounting techniques known as “extraordinary measures.”
Biden has proposed a meeting with congressional leaders from both parties on Tuesday. However, with time running out, it remains to be seen whether an agreement can be reached before the debt cap is hit and significant government spending cuts are triggered. The outcome of this situation could have significant implications for the US economy, employment rates, and stock market.