(Bloomberg) -- The White House warned ahead of President Joe Biden’s meeting Tuesday with congressional leaders that a breach of the debt ceiling would “likely cause severe damage to the US economy” and that a protracted default could result in millions of jobs lost.
A short default would see half a million jobs lost and unemployment rise by 0.3% while knocking 0.6% off annual GDP, according to a Council of Economic Advisers analysis released Wednesday. A protracted default lasting a full fiscal quarter would see the stock market plummet 45%, GDP fall by 6.1%, and unemployment rise five percentage points, the White House estimated.
“Because the government would be unable to enact counter-cyclical measures in a breach-induced recession, there would be limited policy options to help buffer the impact on households and businesses,” the CEA report said.
The White House’s warnings come as Washington is gripped with drama over efforts to raise the current statutory limit of $31.4 trillion in debt, with the Treasury Department saying that extraordinary measures used to avoid default may be exhausted as soon as June 1. Biden has said he is unwilling to offer concessions over raising the debt ceiling, accusing Republican lawmakers of holding the nation’s economy hostage, while House Speaker Kevin McCarthy has said the GOP will not pass an extension without spending cuts.
The standoff seems certain to linger into the month – and White House economists warn the brinkmanship alone could take a toll on the economy. Increased insurance premiums on US debt and volatility in equity and corporate bond markets could prompt the loss of 200,000 jobs, the CEA estimates.
“We have already seen evidence of significant market stress correlated with debt-ceiling tensions,” the White House said in the report.
Earlier Wednesday, White House spokeswoman Karine Jean-Pierre refused to rule out the administration taking unprecedented steps – including invoking a provision of the 14th Amendment protecting public debt – to avoid a default, while saying the administration believed the onus remained on Congress to pass legislation.
“We’re not going to entertain scenarios where Congress compromises the full credit, the full faith and credit of the United States,” Jean-Pierre said.
On Capitol Hill, Democrats were exploring whether they could recruit moderate Republicans to join them for a discharge petition, which would circumvent McCarthy to force action on legislation raising the debt ceiling.
But both options are seen as long shots, focusing attention on Tuesday’s meeting with Biden, McCarthy, Senate Majority Leader Chuck Schumer, and Senate Minority Leader Mitch McConnell.
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