If Congress and the White House fail to agree to raise the debt ceiling, it could devastate the American economy as much as the 2007-08 financial crisis recession, according to a Moody's analysis released Monday.
The United States would lose 6 million jobs, $12 trillion in household wealth, and 4% of gross domestic product (GDP), if the debt ceiling isn't raised before the country runs out of money, wrote Mark Zandi, chief economist for Moody's Analytics.
Government experts project a default date for sometime in June.
Consequently, Zandi suggests the nation's unemployment rate also would double from December's rate of 3.5% up to 7%.
President Joe Biden has repeatedly said his administration will not make deals with House Republicans to roll back any programs during the debt-ceiling negotiations.
Zandi said that a brief default would likely cause a recession, but that a drawn-out standoff would devastate the economy.
"If policymakers actually do fail to increase or suspend the limit before the Treasury runs out of cash and defaults on its obligations, interest rates will spike, and stock prices will crater with enormous costs to taxpayers and the economy," Zandi wrote.
Also, Zandi said the financial market's immediate negative reaction to Congress' failure to raise the debt ceiling is comparable to when the House voted against passing the Troubled Asset Relief Program (TARP) in 2008, which worsened certain global markets that were already bad.
"If lawmakers do not reverse course and the impasse drags on for even a few weeks, the hit to the economy would be cataclysmic," Zandi wrote.
"The timing could not be worse for the economy; even before the specter of a debt limit breach, many CEOs and economists believe a recession is likely this year," Zandi wrote. "With the Federal Reserve ramping up interest rates in an effort to quell wage and price pressures, avoiding a recession would be difficult even if nothing else went wrong."
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