TeaThe United States is on the brink of defaulting on its debt – an unprecedented event that experts agree could send devastating tremors across the global economy.
The debt crisis stems from the inability of US lawmakers to raise the debt ceiling. roof, also known as credit limitEmphasizes the amount the US government can borrow to pay its bills, including legal commitments to fund everything from military pay to health care benefits.
For decades, raising the debt ceiling has become routine as the US government runs a budget deficit and operates largely by borrowing money. Yet partisan divisions have prevented it from being taken up in recent weeks, sparking widespread concern about the economic fallout. Furthermore, since the US dollar is the global reserve currency, a US debt failure would have major international consequences.
“The consequences of a US debt default cannot be overstated,” said Matthew Blake, head of financial and monetary systems at the World Economic Forum. “Policy makers should take all measures to avoid risky fragility when managing the country’s finances.”
one in Recent letter to Congress leadershipTreasury Secretary Janet Yellen said a debt default “would cause severe hardship to American families, damage our global leadership position, and call into question our ability to protect our national security interests.”
So what impact could a US debt default have on everyday consumers? Here are four consequences to be aware of:
financial crisis
A US debt default – even a small debt ceiling breach – is expected to push the US economy into recession.
An analysis by Moody’s found that a prolonged default would result in an estimated 4.6% decline in real GDP by the end of 2023. The prospects for long-term growth will also be less. The credit rating giant said, “The economic downturn that will come has been compared to that during the global financial crisis.” said in his report,
Meanwhile, a analysis continues A protracted default could cause the economy to contract more than 6% at the end of the year, a finding by the White House Council of Economic Advisers found.
Economists note that a recession caused by loan defaults could be particularly damaging because the government would be unable to provide financial relief to the public. As the White House report noted, “The government will be unable to implement counter-cyclical measures in a breach-induced recession, with limited policy options to help mitigate the impact on households and businesses.”
The economic slowdown in the US will also have a negative impact on global trade, putting pressure on economies around the world.
collapse of financial markets
US stocks are expected to drop dramatically as a result of the debt default. The White House report estimated that a long default could cause the stock market to decline by 45%.
Experts have warned that the decline will have a significant impact on retirement accounts and consumer confidence, which will further exacerbate the economic downturn. A massive stock selloff, Moody’s says, could wipe out $10 trillion in US household wealth.
There are chances of a fall in the international stock markets as well. already have stock down in europe resulting in a standoff in Washington.
unemployment to rise
As a result of the economic downturn, unemployment is expected to increase significantly and rapidly.
Moody’s estimates that a prolonged default could result in the loss of about 8 million jobs, pushing the unemployment rate to more than 8%. The agency found that even a small breach of the debt ceiling could result in the loss of 1.5 million jobs and increase unemployment to 5%.
“A prolonged default could cause serious damage to the economy, with hundreds of millions lost at the current pace of job growth,” the White House report said.
cost of borrowing will increase
A debt default would make it more expensive for the US to borrow money because the risk of holding Treasury debt would increase for lenders. This will increase interest rates in the US economy.
in April, Fitch rating assigned that a US debt default would result in the country’s rating being moved to an “RD” (restricted default) classification and that would affect US Treasury securities, which would hold a “D” rating until the default is corrected Will remain
“Risks arising from default will increase interest rates, including interest rates on the financial instruments used by households and businesses—Treasury bonds, mortgages and credit cards,” the White House report said.
During this, US tech real estate company Zillow It is estimated that a loan default would cause 30-year mortgage interest rates to increase by 8.4% in the coming months and home sales to decline by 23% during the recession.
This article was originally published In World Economic Forum.