A US default would impact everyone in America and could take the nation decades to fully recover from, White House economists warned in a report on Wednesday.
The report paints a bleak picture of how failure to raise the debt ceiling in time would set off wide-reaching consequences for everyday American families, businesses and investors.
Everything from paychecks to military personnel and Social Security benefits to the National Weather Service and maintenance of the US power grid could be threatened by a default, the White House economists said.
“Just the threat of a default has negative effects on the U.S. economy, and an actual default for any amount of time would inflict a devastating blow that would be felt by families, businesses, and the economy here and globally for decades to come,” officials in the White House Council of Economic Advisers wrote in the report.
The sobering forecast comes as Wall Street CEOs and other business leaders meet with the White House on Wednesday on the ramifications of a default. The Treasury Department has warned that if Congress doesn’t raise the debt ceiling, it will run out of cash and extraordinary measures by Oct. 18.
The White House said tens of millions of people, including families with children, retirees and veterans, would potentially lose access to federal payments. That includes:
- 42 million people who receive food stamps
- 60 million children whose parents get child tax credits
- 10 million people who get housing assistance
- 11 million students who get financial aid
- 30 million children who participate in school lunch programs
The economists warned a US default could set off an even worse meltdown than the one caused by the 2008 financial crisis – hurting an economy that has not yet fully recovered from Covid-19.
“A default would send shock waves through global financial markets and would likely cause credit markets worldwide to freeze up and stock markets to plunge,” the White House economists wrote. “Employers around the world would likely have to begin laying off workers.”
More on the report: The report, titled Life After Default, cited simulations done in the past by the Federal Reserve and the Peterson Foundation as well as a Moody’s Analytics projection that a default could cost America nearly 6 million jobs.
“Compounding the damage of a default is the fact that the federal government would be immobilized in responding to the very economic crisis a default would likely create,” the economists said.
The government would likely be unable to implement the relief that helped ease prior recessions, including during the onset of Covid-19.
“Instead, the federal government could only stand back,” the economists wrote, “helpless to address the economic maelstrom.”