Debt Ceiling Debacle Could Double Unemployment

According to an analysis, Republican and Democrats do not reach a deal on the country’s debt range, then the financial result can harm the economy so badly that unemployment can increase by 7%.

According to a report this week by Mark Zandi, the chief economist of Moody’s analytics, the growth of that size will mean 6 million people losing their jobs. Their forecasts showed that the latest debt roof’s deadlock could solve significant economic damage if not resolved, including the current 3.5% unemployment rate double.

The US government has reached the $ 31.4 trillion loan limit on January 19, and since then the Treasury Department has been relieved by the Treasury Department to keep the accounting move. This strategy is allowing the US to continue paying its creditors, including people who have Treasury bonds, pension funds, foreign governments and others.

The Congress has the power to increase or suspend the debt limit, as it has done almost every nine months since 1978, but is divided between Republican (which controls the Representative Assembly) and Democrats (which controls the Senate and the presidency) in the government. Both sides disagree to contact national debt.

Republican has said that they will not increase the debt limit unless Democrats agree to cut government spending. For its share, Democrats say they will not interact on the loan roof and want it to be picked up without any restriction.

Treasury Secretary Janet Yellen said earlier this month that the government may continue to use “extraordinary measures” until the beginning of June. Moody’s estimates that measures have been included – including suspension of payment in several funds, including pension for federal employees – will run until August or by the end of October.

Economists and officials have warned that if the deadlock underlines measures, it will have serious consequences. Basic government services such as social security benefits payment will be threatened and the US will default on its debt, unable to pay its creditors.

An American default would cause global investors to lose confidence in the ability of the government to pay their bills, shaking the financial system, Zandi said. The stock will sink and interest rates will increase. Even if a default is resolved quickly, the US will no longer be able to borrow money on favorable terms that have been enjoyed so far.

Zandi said in the report, “If it is resolved quickly, it is likely to pay for this default for US generations, as global investors would correctly believe that the federal government’s finance has been politicized,” Zandi said in the report.

Debt roof struggle comes at a time when many forecasts are already predicting that the American economy will sink into the recession as a result of an increase in the anti-inflation interest rate of the Federal Reserve.

“Time can’t be worse for the economy,” Zandi said in the report.

Is there a question, comment or story to share? You can reach Diccon at dhyatt@thebalance.com.