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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, causing a downturn that would rival the “Great Depression” of 1929.
According to the report, if the United States does not repay its debts and the deadlock persists, the ensuing recession will wipe out nearly 6 million jobs and bring the country’s unemployment rate to nearly 9%.
The report found that the stock market crash would cut stock prices by a third and wipe out an estimated $ 15 trillion in 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 it will run out of cash in October unless Congress raises the debt ceiling.
Despite the specter of a default, Republicans have refused to support an increase in the debt limit amid concerns over the Biden administration’s massive spending plans.
Moody’s notes that financial markets aren’t afraid to face the debt ceiling, indicating a widely held belief that Congress will eventually act. The impact on Wall Street has been much smaller so far than in the 2011 and 2013 confrontations.
“Ironically, because investors seem so optimistic about how this drama will play out, policymakers may think they have nothing to fear and fail to resolve debt limits in a timely manner,” Zandi said.
Moody’s found that fears of a US default in 2013 increased Treasury yields, costing taxpayers about half a billion dollars in additional interest charges, and making borrowing for families and businesses more expensive.
And if Congress doesn’t raise the debt ceiling and the Treasury starts paying overdue and defaulting bills, the markets will react very negatively.
Moody’s has found that the worst-case scenario would be if Congress fails to act to raise the debt ceiling and the deadlock persists.
Biden in the US Congress
That would force the federal government to delay payments due Nov. 1 by about $ 80 billion, Moody’s said.
Including for beneficiaries of social security, veterans and soldiers in active service. Further deep cuts in spending will have to be imposed if the crisis continues into November.
Besides the immediate impact on the US economy, the default is likely to cast a shadow over the United States for a long time to come.
“Americans will pay for this generational flaw because global investors rightly believe that the federal government’s public finances have been politicized and that there may come a time when they will not be paid when they have to,” Zandi wrote.
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