As default looms, White House warns of financial crisis
As Washington ponders raising the debt limit, the White House offers a sober view of the real impact of default.
If lawmakers fail to raise the federal debt limit before the government runs out of money to cover its bills, it could trigger a global financial crisis that the United States would be powerless to cope with, economists warn from the White House in a report released Wednesday.
“A default would send shock waves through global financial markets and likely cause credit markets around the world to freeze and stock markets to fall,” officials at the White House Council of Economic Advisers have warned. âEmployers around the world should probably start laying off workers. “
The potential for a ensuing global recession, they wrote, could be worse than the 2008 financial crisis, as it would come as countries continue to struggle to escape the Covid-19 pandemic. Adding to the burden, Congress and President Biden would be unable to spend money to support the economy until the debt limit, which caps the amount America can borrow, is raised.
âThe federal government could only back down,â they wrote, âpowerless to face the economic maelstromâ.
Mr Biden and Democratic leaders in Congress are in a growing stalemate with Senate Republicans, who agree the debt limit must be raised in the coming weeks to avoid default, but blocking an upward vote or descending to do so. Republicans want Democrats to use a special process in the Senate to get around their obstruction, which Democrats have resisted. Mr Biden called the Republicans’ actions irresponsible and tried, unsuccessfully, to shame them for allowing a vote.
The report released Wednesday offered a detailed and almost apocalyptic look at the White House’s fears about how a default on debt – which would arise when the government is unable to pay everyone it owes money to. same time – would affect the economy.
Officials warn that even the threat of a default in 2011 drove mortgage rates up for homebuyers for months, and an actual default could push them even higher this time around. They also say that retirees, Medicare beneficiaries, members of the military and millions of others who depend on federal payments could see their livelihoods cut “quickly, even overnight in some cases.”
They also say that some essential federal services – like forecasts from the National Weather Service or timing from the National Institute of Standards and Technology – could be disrupted for lack of funds.
Mr. Biden continues to pressure Republicans to allow Democrats to approve a party-wide debt limit increase in the Senate. Failing that, Democrats in Congress will be forced to push the increase through the budget reconciliation process that bypasses filibuster, or remove filibuster for the vote.
The administration ruled out unilateral efforts to circumvent the limit, such as minting a $ 1 trillion coin, saying such efforts would create uncertainty that would hurt the economy.