WASHINGTON — The White House on Wednesday published new calculations warning about the potential damage to the U.S. economy and taxpayers should the government fail to raise the nation’s debt limit.
In a blog post published Wednesday and obtained first by NBC News, the White House Council of Economic Advisers identified three scenarios of varying severity: “Brinksmanship,” in which negotiations run up until the June 1 deadline set by the Treasury; a “brief” default, in which that deadline is tripped but then resolved within a week; and a “protracted” default where the U.S. fails to raise its borrowing levels for more than a quarter.
A protracted default, CEA says, would result in a Great Recession-like doomsday scenario wherein 8.3 million people lose their jobs, and the stock market falls by 45 percent.
A brief default would spur 500,000 job losses, leading to a 0.3% rise in unemployment, the CEA argues. And taking negotiations to the brink would risk 200,000 job losses and drive unemployment up by 0.1%.
In every scenario, U.S. economic growth turns negative — ranging from a 0.3% contraction to a 6.1% contraction — leading to the beginning of a possible recessionary period. And any recession, CEA says, would be even more painful because the government could not intervene.
“In a breach-induced recession, there would be limited policy options to help buffer the impact on households and businesses,” the White House writes in the post. Federal and state unemployment insurance would not be expanded, and borrowing costs for consumers and the government could skyrocket, increasing the burden on taxpayers. The Brookings Institution estimates the uncertainty could drive the cost to service government debt up by up to $750 billion.
Asked on Wednesday to assess the impact of a default on the economy, Federal Reserve Chair Jerome Powell refused to accept that any of the scenarios were possible.
“I don’t really think we should even be talking about a world where the U.S. doesn’t pay its bills. It just shouldn’t be a thing,” Powell told reporters at a news conference after raising interest rates.
And he affirmed that the tools at the Fed’s disposal wouldn’t be able to blunt the effects.
“No one should assume the Fed can really protect the economy and the financial system and our reputation globally from such damage that event might inflict,” Powell continued.
The Council of Economic Advisers is the White House’s Cabinet-level economic forecasting agency. CEA’s findings are based in part on research conducted by Moody’s Analytics economist Mark Zandi.
Source: | This article originally belongs to Nbcnews.com
