US default would cut nearly 6 million jobs, according to Moody’s

If the United States defaults on its debt payments and the deadlock continues, the ensuing recession would wipe out nearly 6 million jobs and raise the country’s unemployment rate to nearly 9%, has Moody’s predicted in a report released Tuesday.

Moody’s notes that financial markets are not panicking over the debt ceiling showdown, suggesting that there is a widely held belief that Congress will eventually act. The impact on Wall Street has been much smaller so far than during the 2011 and 2013 deadlocks.

“Ironically, because investors seem so optimistic about how this drama is going to play out, policymakers may think they have nothing to fear and fail to resolve the debt limit on time,” he said. writes Zandi. “It would be a glaring mistake.”

“COVER Moment”?

Even a close call could cost the economy and taxpayers dear.

Fears of a US default in 2013 raised Treasury yields, costing taxpayers about half a billion dollars in additional interest charges and making borrowing more expensive for families and businesses, a discovered Moody’s.

If Congress fails to raise the debt ceiling and the Treasury starts paying overdue and defaulting bills, the markets would react very negatively.

“There would probably be a TARP moment,” Zandi wrote, referring to the 2008 market crash after Congress initially did not approve the Wall Street bailout – then quickly reversed.

The worst-case scenario, according to Moody’s, would be if Congress still does not act to raise the debt ceiling and the deadlock continues.

That would force the federal government to delay payments due Nov. 1 by roughly $ 80 billion, including to Social Security recipients, veterans and active-duty military personnel, Moody’s said. Further drastic spending cuts are expected to be imposed if the crisis lasts until November.

Beyond the immediate impact on the US economy, a default would likely cast a shadow over the US for a long time.

“Americans would pay for this default for generations,” Zandi wrote, “because global investors would rightly believe that federal government finances have been politicized and that a time may come when they will not be paid what they are doing. is due when they owe it. ”