White House economists said that an extended breach of the nation’s borrowing limit could wipe out more than 8 million jobs and cause “severe” economic damage resembling the Great Recession, as lawmakers run out of time to resolve the fiscal impasse.
breach to the 2008 Great Recession, in which economic growth contracts sharply and unemployment surges. The nightmare scenario of a “protracted” standoff over the debt limit — or one that lasts about three months — would lead to a 6 percent contraction in the size of the economy, comparable to the shock of the 2008 recession, the report found. The stock market would also fall by an estimated 45 percent.
The new warnings come days ahead of President Biden’s meeting with congressional leaders Monday about the debt limit and government spending.
If the United States fails to make its payment obligations, interest rates could spike as investors demand a higher premium on purchases of government debt. Higher interest rates would ripple throughout the economy, making mortgages, credit cards and other purchases more expensive for most Americans. Retirement accounts, consumer and business confidence, and consumption would all take a hit.
Unlike a traditional recession, in which lawmakers approve new spending to counteract a private market contraction, Congress would have few tools to respond to the economic shocks caused by a debt ceiling breach, the administration report stresses.“Unemployment increases 5 percentage points as consumers cut consumption, and businesses lay off workers,” the report states. “Unlike the Great Recession and the COVID recession, the government is unable to help consumers and businesses.
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