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White House warns 8 million jobs could be lost in default that he could avert with House bill

By Sarah May on
 May 5, 2023

Amid its ongoing battle with Republicans over the nation's debt limit, the Biden White House this week issued stark warnings about the potential economic fallout in the event the government defaults on its payment obligations for an extended period of time, as Reuters reports.

The dire predictions came in the form of a Wednesday report from the White House Council of Economic Advisers, which included concerns over “severe” economic damage and job losses in the millions.

Three Scenarios

According to CNBC, the White House lays out three potential scenarios regarding the debt limit fight and the consequences each could yield.

The first of these is referred to as “Brinksmanship,” or a situation in which negotiations persist until the June 1 target the Treasury Department has set for an increase in the debt ceiling.

A second possibility outlined by the administration is that of a “brief” default in which the June 1 deadline passes, but the dispute is resolved within a week.

The third scenario described is that of a “protracted” default that continues for a full quarter or more.

Dire Prognostications

According to the Council of Economic Advisers, a protracted default is likely to put 8.3 million Americans out of work and produce a 45% drop in the stock market.

Even a brief default, the White House says, would bring job losses of up to 500,000 as well as an uptick in unemployment.

The so-called “Brinksmanship” scenario would put 200,000 jobs in jeopardy and spur a rise in unemployment, but one that is less serious than what a brief default would cause.

In all of the above situations, the White House contends, the nation's economic growth will turn negative, and a recessionary period could begin without any ability on the part of the government to take corrective action.

“Limited Policy Options”

The White House report on the possible crisis goes on to declare, “in a breach-induced recession, there would be limited policy options to help buffer the impact on households and businesses.

There would be no federal or state expansion of unemployment insurance, and borrowing costs in all sectors would dramatically increase, the administration explains.

Federal Reserve Chair Jerome Powell said of the potential impact of a default on the American economy, as CNBC noted, “I don't really think we should even be talking about a world where the U.S. doesn't pay its bills. It just shouldn't be a thing.”

Powell further cautioned, “No one should assume the Fed can really protect the economy and the financial system and our reputation globally from such damage that might inflict.”

Self-Created Crisis?

In response to the foreboding portrayal offered by the White House, House Republicans would almost certainly point to the legislative solution they have already shepherded through the lower chamber, but which President Joe Biden has flatly refused to entertain.

The so-called “Limit, Save, Grow Act” was passed by the House last week and, according to Republican Speaker Kevin McCarthy (CA-20), the bill balances the need to raise the debt ceiling – albeit only one year at a time – with a desire to limit executive power and slash government spending.

Biden, for his part, however, has thus far been largely unwilling to discuss anything except a “clean” debt limit increase that lacks any of the fiscal restraint provisions he argues will place key entitlement programs in danger, recently even suggesting that he would veto McCarthy's bill if it somehow managed to pass in the Senate.

However, with growing calls – even from some Democrats – for Biden to engage with McCarthy to come up with a compromise to prevent default, the pair are now set to meet on May 9, but at least so far, the president is still signaling his insistence on addressing the debt ceiling and federal spending separately, setting the stage for a possible stalemate.