Politics
Economic danger ahead? Experts warn US debt ceiling near to its limit
The Treasury Secretary has sounded the alarm for the dangers of Congress refusing to lift the debt ceiling in what will surely be another wrestling match on Capitol Hill.
The United States is facing a potential economic crisis as it rapidly approaches its debt ceiling limit, with experts warning of severe consequences if Congress fails to act. Treasury Secretary Janet Yellen has announced that the U.S. is expected to hit its borrowing limit between January 14 and January 23, 2025, triggering the need for extraordinary measures to avoid defaulting on the nation’s debt.
The debt ceiling, which is the maximum amount the U.S. Treasury can borrow to pay its obligations, was suspended in June 2023 as part of a bipartisan deal between then-House Speaker Kevin McCarthy and President Joe Biden. This suspension is set to expire on January 2, 2025, reinstating the limit on Treasury’s ability to issue new debt.
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Economists and financial experts are sounding the alarm about the potential repercussions of reaching or breaching the debt ceiling. Mark Zandi, Chief Economist of Moody’s Analytics, predicts that even a brief default could ignite a crisis characterized by spiking interest rates and plunging equity prices. The consequences could be far-reaching, potentially leading to:
- A decline in real GDP
- The loss of nearly 2 million jobs
- An increase in the unemployment rate to nearly 5%
- Lasting higher interest costs for the government
The impact on the global economy could be equally severe. Goldman Sachs economists estimate that a breach of the debt ceiling would immediately halt about one-tenth of U.S. economic activity. This could potentially tip both the U.S. and global economies into an immediate recession.
Former Treasury Secretary Jacob Lew emphasized the gravity of the situation, stating, “I think it’s pretty safe to say that if we were to default, it makes the odds of a recession almost certain”.
The White House has conducted analyses suggesting that a breach of the debt ceiling could result in the loss of millions of jobs and substantial economic damage. Even approaching the debt ceiling without breaching it could cause significant disruptions to financial markets, as evidenced by historical precedents.
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