White House predicts economic fallout if US fails to make debt payments

The White House issued a dire warning on Wednesday, predicting a future of falling equities and rising unemployment should the United States fail to make its debt payments. This scenario is becoming more likely as Democrats and Republicans spar over government spending.

The US government’s failure to pay its financial obligations might result in eight million job losses this summer and a six per cent decline in GDP, according to the President’s Council of Economic Advisers, a prominent federal advisory group.

According to the council, the stock market might decline by 45 per cent in the third quarter.

The analysts predicted that even a slight halt in payments would result in higher unemployment when the economy entered a downturn.

President Joe Biden is at odds with Republicans in the lower chamber of Congress, which they control, over national spending and public debt.

The Democratic president has asked Republicans to raise the country’s debt ceiling — the amount of debt it is legally allowed to take on.

But Republicans in the House of Representatives have said they won’t do so without a broader agreement to cut government spending.

The two sides don’t have much time to negotiate: The Treasury Department estimates that the country will reach its debt cap on 1 June, triggering massive cuts in government spending, including toward debt payment.

Raising or suspending the debt ceiling, a policy unique to the United States was long considered a formality, as larger questions about public debt and national spending were hammered out in the background.

But during the presidency of Barack Obama, Republicans started taking a harder line, trying to use the vote as a point of political leverage.

Technically, the United States already hit its debt ceiling in January — more than $31 trillion — but the government has been able to work around it for now with various accounting moves known as “extraordinary measures.”

Biden has proposed a meeting with congressional leaders from both parties on Tuesday.

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