Congress has just days to raise the debt ceiling — and Americans’ jobs are on the line.
For months, Speaker of the House Kevin McCarthy and President Joe Biden have been at odds over the best approach to raise the debt ceiling , and now, those negotiations are coming down to the wire. Treasury Secretary Janet Yellen has repeatedly warned McCarthy that the US could hurdle into a default in early June , after which point the government will run out of money to afford federal programs and pay out benefits that millions of Americans rely on, like Social Security.
Biden and McCarthy finally reached an agreement on Saturday night, and they now have to sell the provisions to their respective parties.
A default on the nation’s debt is unprecedented, and there’s no way to predict what exactly would happen to the economy should lawmakers fail to raise the debt ceiling before the deadline. But Moody’s Analytics has previously estimated that even a short-term default could cost Americans over a million jobs, likely undoing the recovery the country has made since the pandemic.
One scenario Moody’s Analytics examined is a “prolonged breach scenario” involving a weeks-long default. Bernard Yaros, an economist at Moody’s Analytics, told Insider that scenario would occur if “the X-date is hit in early June and lawmakers don’t end the crisis until the end of July.”
That would translate to “7.8 million jobs lost from peak to trough,” Yaros said. Professional and business services would see about 1.4 million job losses in this scenario, and health services would see just under 1 million jobs lost. Other industries would see over half a million jobs lost in this scenario, including construction.
Josh Bivens, chief economist at the Economic Policy Institute, told Insider that “an actual default would affect every single sector,” adding that “it would be a mammoth across the board kind of recession.”
“It’s not just financial markets that would suffer. Any kind of default will put major stress on the rest of the real economy. Social Security payments would immediately be delayed ,” Konczal said. “This would cause hardship for many and immediately cause consumers to panic, stop spending, and slow the economy, threatening major recession.”
At this point, it’s unclear if Congress will reach an agreement before Americans start to experience those consequences. McCarthy told reporters on Thursday that “whenever you’re able to get to an agreement, you got to make sure you print it, post it, then you got three days before you vote. We’ve got time, we’re going to get this done.”
But experts are cautioning against waiting until the last minute, and potentially triggering an economic downturn.
“If we default and it goes on for three to four months, I think you could be talking about unemployment rate increases like we saw in the financial crisis of 2008,” Bivens said. “But this is all super speculative because it’s the kind of catastrophe we’ve just never had before, and it’s totally avoidable.”
