WASHINGTON — The White House on Wednesday published new calculations warn of potential damage to the US economy and taxpayers if the government does not increase the nation’s debt limit.
In a blog post published Wednesday and first obtained by NBC News, the White House Council of Economic Advisers identified three scenarios of varying severity: «Brinksmanship,» in which negotiations run through the June 1 deadline established by the Treasury; a “brief” default, where that deadline is skipped but then resolved within a week; and a “prolonged” default in which the US fails to raise its debt levels by more than a quarter.
A prolonged default, CEA says, would result in a Great Recession-like doomsday scenario in which 8.3 million people lose their jobs and the stock market plunges 45 percent.
A brief default would result in the loss of 500,000 jobs, leading to a 0.3% rise in unemployment, the CEA argues. And taking the negotiations to the limit would risk the loss of 200,000 jobs and increase unemployment by 0.1%.
In all scenarios, US economic growth turns negative, from a 0.3% contraction to a 6.1% contraction, leading to the start of a potential recessionary period. And any recession, the CEA says, would be even more painful because the government would not be able to intervene.
“In a default-induced recession, there would be limited policy options to help cushion the impact on households and businesses,” the White House writes in the publication. Federal and state unemployment insurance would not expand, and borrowing costs for consumers and the government could skyrocket, increasing the burden on taxpayers. The Brookings Institution estimates that the uncertainty could increase the cost of servicing government debt by as much as $750 billion.
Asked on Wednesday to assess the impact of a default on the economy, Federal Reserve Chairman Jerome Powell refused to accept that either scenario was possible.
“I really don’t think we should be talking about a world where the United States doesn’t pay its bills. It just shouldn’t be a thing,” Powell told reporters at a news conference after raising interest rates.
And he stated that the tools at the Fed’s disposal would not be able to mitigate the effects.
«No one should assume that the Fed can actually protect the economy and the financial system and our reputation worldwide from the damage that such an event could inflict,» Powell continued.
The Council of Economic Advisers is the White House’s cabinet-level economic forecasting agency. CEA’s findings are based in part on research by Moody’s Analytics economist Mark Zandi.