On Wednesday, the White House released a blog post in which they detailed many of the potential problems that the U.S. economy and taxpayers may face if the government ends up defaulting on its debt after failing to increase the national debt limit.
The blog post notes that the White House Council of Economic Advisers has found three different scenarios of what will occur following a debt default. These have been found based on the severity of the situation.
- “brinksmanship,” in which case negotiations will continue until June 1, which is the Treasury’s current deadline
- a “brief” default where the deadline is not met, but action is taken swiftly resulting in a resolution
- “protracted” default in which case the U.S. has not managed to agree to a debt increase for more than a quarter
The CEA has advised that a protracted default would eventually lead to a situation similar to the Great Recession, meaning that the stock market would fall by close to half and more than 8 million people would lose their job.
Federal Reserve Chair Jerome Powell on Wednesday was asked about his assessment of the impact of a potential default. However, Powell refused to consider that any of these scenarios may come to be. He added that he does not believe there should be discussions pertaining to the possibility that the United States might not be able to fulfill all of its obligations and pay its bills.
He added that no matter what the Fed had at its disposal it would be incapable of fully protecting the economy and the country’s reputation from the effects of a default.