The White House said that if the US government fails to pay its public debt, it could cause significant damage to the US economy. In a statement, the White House added that there is broad consensus among economists that exceeding the debt ceiling would create an economic disaster that could be avoided now.
The US public debt exceeds $31 trillion, which is equivalent to 125% of the country's Gross Domestic Product (GDP). Economic advisers to President Joe Biden warned that if the world's largest economy fails to meet its financial obligations on time and this default lasts for a long time, the US labor market could lose over 8 million jobs this summer, according to Agence France-Presse.
The advisers added that if this catastrophic scenario occurs, the GDP will shrink by 6%, while the financial markets will lose 45% in the third quarter of the year.
However, if the US experiences a short-term default, advisers in the White House's Council of Economic Advisers predict that the American economy will suffer from a lower recession rate and an increase in unemployment.
This issue poses a significant risk to the United States, as the country has never found itself in a situation of defaulting on its debts before. Republicans refuse to agree to raise the federal debt ceiling, which is usually a routine measure unless Democrats first agree to significant spending cuts.
Exceptional measures.
The administration warns that failing to raise the debt ceiling will lead to the United States falling behind on paying its debt obligations, which amount to $31.4 trillion, in a historic precedent that would cause shockwaves in the United States and the world alike.
President Joe Biden's administration has taken measures to reduce spending and avoid defaulting on its debts, but the deadline for these measures expires next month.
US Treasury Secretary Janet Yellen has warned of the possibility of the federal government running out of available liquidity by this deadline if Congress fails to agree on suspending the debt ceiling.
What is the debt ceiling?
The debt ceiling is a limit imposed by Congress on the amount of money the federal government can borrow to pay its bills.
US Treasury data shows that the debt ceiling has been raised nearly 80 times since 1960.
Raising the debt ceiling allows the federal government to continue issuing Treasury bonds that generate revenue and help it pay its bills, which investors worldwide buy because they are considered a safe and reliable investment.
