President Biden very often uses research from Moody’s while he is attempting to make a point on the United States economy.
He should use the newest from Moody’s Mark Zandi to stress any point being pushed by his fellow politicians on either side of the aisle about the need to get the debt ceiling deal done fast.
“Stopping the government would not cause immediate harm to America’s economy, but a default would lead to a catastrophic hit to the economic recovery from the pandemic,” stated Zandi, the chief economist from Moody’s.
The hit from a default on our debt because of lawmakers not extending America’s debt ceiling would be especially acute to investors inside the market, according to Zandi.
“Stock prices would lower by one-third in one of the worst sell-offs, wiping away $15 trillion in wealth. Treasury yields, mortgage rates, and other rates would spike, at least until the debt limit was resolved and Treasury payments continue. Even then, rates would never go back to where they were before. Since United States Treasury securities would no longer be without risks, future generations would pay a big price,” said Zandi, speaking about the possible fallout to asset markets.
Mostly, the stock market pressure would be about the huge economic harm dealt by such a default on America’s debt.
Zandi explains, “The hit to business, consumer and investor confidence would be very severe. If the impasse over the limit lasts through November, the U.S. Treasury will not have a choice but to remove a cash deficit of around $200 billion by removing government spending. Annualized, this is equal to over 10% of GDP. The economic blow would really be devastating.”
Zandi’s scary predictions come after Treasury Secretary Janet Yellen warned about a “catastrophe” if the debt ceiling was not settled.
“The United State has never defaulted. Not even once. Doing so would possibly cause a historic financial crisis that would make the damage worse during the continuing health emergency and pandemic. Default could also lead to a spike in interest rates, a large drop in stock prices and other financial problems. Our current recovery would go into a recession, with billions in growth gone and millions of jobs gone,” Yellen said inside her WSJ op-ed.
Author: Blake Ambrose