Moody’s Analytics warned in a new report that a US default would be a “catastrophic blow” to the US economic recovery from the Corona pandemic, leading to a recession that could rival the “Great Depression” of 1929.
According to the report, if the US fails to pay the debt and the impasse continues, the resulting recession will wipe out nearly 6 million jobs and raise the country’s unemployment rate to nearly 9%.
The report found that the market crash would cut stock prices by a third and wipe out about $ 15 trillion from household wealth, according to CNN, which was seen by Al Arabiya.net.
“This economic scenario is catastrophic,” wrote Moody’s chief economist Mark Zandi.
The US Treasury estimates liquidity will run out in October unless Congress raises the debt ceiling.
Despite the specter of a default, Republicans have refused to support a debt limit hike due to concerns about the Biden administration’s massive spending plans.
Moody’s notes that financial markets are not afraid to face the debt ceiling, indicating a widespread belief that Congress will eventually act. So far, the impact on Wall Street has been much less than showdown of 2011 and 2013.
“Ironically, as investors seem so optimistic about how this drama will unfold, policymakers may feel they have nothing to worry about and cannot resolve debt limits. in in a timely manner, “said Zandi.
Moody’s found fears of a US default in 2013 boosted Treasury yields, costing taxpayers about half a billion dollars. in additional interest costs, as well as making loans more expensive for households and businesses.
And if Congress fails to raise the debt ceiling and the Treasury starts paying the bills in lags and fails, the markets will react in very bad way.
Moody’s found that the worst case scenario would be if Congress did not act to raise the debt ceiling and the impasse persisted.
This would force the federal government to delay about $ 80 billion in payments due on November 1, Moody’s said.
Included for social security, veteran and military recipients in active duty. If the crisis continues into November, further spending cuts will have to be imposed.
In addition to the immediate blow to the US economy, default is likely to cast a shadow over the US for a long time to come.
“Americans will pay for this generational default, as global investors rightly believe that the federal government’s public finances have been politicized and that there may come a time. in they will not get paid when they owe it, “Zandi wrote.
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