The president’s Council of Economic Advisers cautioned that this could cause an economic shock that would lead to eight million job losses this summer and a 6% drop in Gross Domestic Product (GDP). The council also predicted that the stock market could drop 45% in the third quarter and warned that even a brief interruption in payments could lead to a recession and a surge in unemployment.
President Joe Biden is at odds with Republicans in the House of Representatives over national spending and public debt. The Democratic president has urged Republicans to raise the country’s debt ceiling, which is the maximum amount of debt the government can take on legally. Republicans have refused to do so without a broader agreement to cut government spending. The Treasury Department estimates that the country will reach its debt cap on June 1, which would trigger massive cuts in government spending.
Raising or suspending the debt ceiling, which is unique to the United States, was once considered a formality as larger questions about public debt and national spending were negotiated behind the scenes. However, during Barack Obama’s presidency, Republicans began to use the vote as a point of political leverage. Although the US technically hit its debt ceiling in January 2021, the government has been able to work around it for now with various accounting manoeuvres known as “extraordinary measures.”
Biden has proposed a meeting with congressional leaders from both parties on Tuesday to discuss the issue. But time is running out to reach a deal, and failure to raise the debt ceiling could have dire consequences for the US economy. If the government defaults on its debt payments, there could be a future of tumbling stocks and spiking unemployment. The situation is precarious, and both sides must find a way to compromise to avoid a catastrophic economic collapse.