The White House warned on Wednesday of a future of tumbling stocks and spiking unemployment if the United States defaults on its debt payments, a looming possibility as Democrats and Republicans fight over national spending.
The president’s Council of Economic Advisers, a top federal consultative body, warned that if the US government stops meeting its financial obligations, the resulting economic shocks could cause eight million job losses this summer and a six percent drop in GDP.
Read more: White House calls for meeting to discuss issues pertaining to AI
The stock market could drop 45 percent in the third quarter, the council added.
Even a brief interruption in payments would increase unemployment as the economy tumbles into a recession, the economists said.
President Joe Biden is at odds with Republicans in the lower chamber of Congress, which they control, over national spending and public debt.
The Democratic president has asked Republicans to raise the country’s debt ceiling — the amount of debt it is legally allowed to take on.
But Republicans in the House of Representatives have said they won’t do so without a broader agreement to cut government spending.
Read more: Muslim Mayor prevented from attending Eid-ul-fitr celebration at the White House
The two sides don’t have much time to negotiate: The Treasury Department estimates that the country will reach its debt cap on June 1, triggering massive cuts in government spending, including toward debt payment.
Raising or suspending the debt ceiling, a policy unique to the United States, was long considered a formality, as larger questions about public debt and national spending were hammered out in the background.
But during the presidency of Barack Obama, Republicans started taking a harder line, trying to use the vote as a point of political leverage.
Technically, the United States already hit its debt ceiling in January — more than $31 trillion — but the government has been able to work around it for now with various accounting moves known as “extraordinary measures.”
Biden has proposed a meeting with congressional leaders from both parties on Tuesday.