The White House said that the US government’s default on public debt could cause serious damage to the US economy.
The White House added – in a statement – that there is a broad consensus among economists that exceeding the debt ceiling will generate an economic disaster that can now be avoided.
The US public debt exceeds $31 trillion, which is equivalent to 125% of the country’s gross domestic product.
According to the French Press Agency, Joe Biden’s economic advisors have warned that if the United States, as the largest economic power in the world, fails to meet its financial obligations on time and this default persists, the American labor market may lose more than 8 million jobs this summer.
According to the advisors, if this catastrophic scenario occurs, there will be a 6% contraction in the gross domestic product. Also, during the third quarter of the year, the financial markets will experience a 45% loss.
The advisors from the “Council of Economic Advisers” in the White House predict that if the United States experiences a short period of default, the American economy will likely endure an increase in unemployment rates and a smaller recession.
The United States is facing a significant risk because it has never defaulted on its debt before.
Republicans refuse to agree to raise the federal public debt ceiling, which is usually a routine measure, unless the Democrats first agree to significant spending cuts.
The administration is cautioning that if the public debt ceiling is not increased, the United States will default on its $31.4 trillion debt. This would be a historically unprecedented event that would be surprising and alarming for both the United States and the rest of the world.
President Joe Biden’s administration has taken measures to cut spending and avoid defaulting on debt, but these measures expire next month.
US Treasury Secretary Janet Yellen warned of the possibility of running out of liquidity available to the federal government by this date if Congress fails to agree on suspending the debt ceiling.
What is the debt ceiling?
The debt ceiling is a congressional constraint on how much money the federal government can borrow to pay its bills.
US Treasury data indicates that the debt ceiling has been raised nearly 80 times since 1960.
Raising the debt ceiling allows the federal government to continue issuing Treasury bonds, which generate revenue and help it pay its bills. Investors around the world buy the bonds because they are seen as a safe and reliable.