The White House warned that the stock market could collapse 45 percent if the US defaults on its debt.
There would also be a deep recession, similar to the 2008 financial crisis.
The debt ceiling deadline is fast approaching in early June as the US Treasury has exhausted all of its extraordinary measures.
The Council of Economic Advisors White House warned earlier this month that a default by the USA a burglary of stock market by 45 percent and a deep recession like the big one financial crisis 2008 could trigger.
read too
US debt ceiling soon to be reached
The deadline for lawmakers to repeal the debt ceiling Early June is fast approaching as Treasury Secretary Janet Yellen has exhausted all of the Department’s special measures. Failure to reach an agreement on the debt ceiling could mean the Treasury Department halting payments to Social Security, Medicare and Medicaid, and ultimately US bondholders.
A possible default in mid-June has caused the 1-month US Treasury yield to rise to 5.56% from a low of 3.31% last month.
“The closer the US to the debt ceiling approach, the more we expect this to become Market Stress Indicators deteriorate, leading to increased volatility on stocks and corporate bond markets and limit the ability of companies to finance themselves and make the productive investments needed to expand the current ones [wirtschaftlichen] expansion are essential”, according to the White House Council of Economic Advisers in a May 3 post.
Other Market Indicators However, show that the probability of a US debt default is low as the VIX, the fear indicator of the stock marketis trading at low levels and the broader stock market traded near year-highs. According to JPMorgan, credit default swaps currently only have a 4 percent chance of a US debt default.
read too
A default would have devastating consequences
In the event that it’s in the USA comes a protracted debt default that won’t be resolved quickly, the White House warned that the stock market could plunge 45 percent, taking the S&P 500 to a level of 2,250 points as of May 3. In addition, millions of people would Workplace lose and a strong more economical Decline would be massive recession lead, warned the economic advisers of the White House.
The predictions are based on a White House simulation of what might happen if the US, for the first time in its 246-year history Debts could not serve.
“In the third quarter of 2023, the first full quarter after the simulated debt breach, the stock market plunges 45 percent, causing retirement accounts to collapse; meanwhile, consumer and business confidence will be severely hit, causing consumption and investment to fall,” the economic advisers said, adding that unemployment would rise by 5 percentage points.
To make matters worse, in the event of a possible protracted default, the government would be unable to implement fiscal stimulus measures to address the Business to prop up as they have during the COVID-19 pandemic and after the big one financial crisis did in 2008.
The economic advisers compared their work to a simulation by rating agency Moody’s that a protracted outage scenario would result in nearly 8 million job losses.
read too
The government would no longer have any fiscal instruments at its disposal
“Without the ability to spend on countercyclical measures like expanded unemployment insurance, federal and state governments would be handicapped in managing this turmoil and unable to protect budgets from the impact,” the council said.
In addition, US households would not be able to turn to the private sector for credit as interest rates on credit cards and personal loans would “skyrocket,” according to the Council of Economic Advisers.
“>External content not available
Your privacy settings prevent the loading and display of all external content (e.g. graphics or tables) and social networks (e.g. Youtube, Twitter, Facebook, Instagram etc.). To display, please activate the settings for social networks and external content in the privacy settings .