Moody’s Economist Calls Debt Ceiling Breach ‘Immediate Threat’ — Millions of Jobs on the Line
A leading U.S. economist has painted a bleak economic picture if Congress is unable to reach a debt ceiling agreement soon, warning that “financial markets would be roiled,” and the “hit to the economy would be cataclysmic.”
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Those warnings were issued on Tuesday by Mark Zandi, Chief Economist at Moody’s Analytics, in written testimony to the U.S. Senate Committee on Banking, Housing, and Urban Affairs’ Subcommittee on Economic Policy.
In his testimony, Zandi called the U.S. Treasury debt limit “an immediate threat” to any chance that the economy can avoid recession in the coming year and “poses a long-term threat” to the nation’s finances and economic growth.
“Unless lawmakers increase, suspend, or eliminate the limit, Treasury won’t have the cash to pay all its bills on time later this summer,” Zandi wrote. “Financial markets and the economy would be hit hard. There is a temptation to brush off the developing debt limit drama, thinking it will end the same way as the others over the years with lawmakers coming to terms and signing legislation just in time. That seems a mistake given the heightened dysfunction in Congress and the large political differences gripping the nation.”
On Jan. 19, the federal government officially hit its debt ceiling, having spent all of the $31.4 trillion available for expenditures as allocated by the Treasury. Since then, heated discussions and public debates have emerged concerning how the country will move forward to solve the crisis and avoid a spending freeze. So far, Republican and Democrat lawmakers have not found much common ground to resolve the debate, meaning it could drag on for months.
As CNN reported, new economic simulations from Moody’s estimate that even a brief breach of the debt limit would kill nearly 1 million jobs and cause the economy to sink into a “mild” recession. The unemployment rate would rise from a half-century low of 3.4% at the start of 2023 to nearly 5%. Many Americans might see their retirement savings plummet if the stock markets turn south again.
If lawmakers fail to act in time, uncertainty over what’s to come will likely push interest rates higher and send stock prices tumbling even further, Zandi wrote. He envisions a Troubled Assets Relief Program (TARP) scenario, referencing the 2008 bank bailout program that Congress initially failed to pass, leading to a massive stock-market crash.
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“A similar crisis, characterized by spiking interest rates and plunging equity prices, would be ignited,” Zandi noted in his testimony. “Lawmakers should put an end to the wrangling over the debt limit and increase it with no strings attached so future generations can enjoy the same benefits.”
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