White House warns debt default could wipe out 8 million jobs, plunge stock market

CNN

White House economists warned Wednesday that a prolonged debt default could result in the loss of 8 million jobs, and halve the stock market.

The White House Council of Economic Advisers published the new projections in a blog posting. This post makes clear the huge stakes that could be involved if the debt ceiling is breached.

The White House economists warned that a prolonged default could cause severe economic damage, with the job growth reversing its recent robust gains and resulting in losses of millions.

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Treasury Secretary Janet Yellen warned that the US could default as early as June 1, if Congress does not act.

The report estimates impact under three scenarios - brinksmanship; a short default; and a prolonged default.

According to the Biden Administration, even a scenario of brinksmanship, in which a default was avoided, would result in the loss of 200,000 jobs, and a 0.3 percent reduction on annual GNP.

In the event of a short-term default, about a half million jobs would be lost and the unemployment rate will rise by 0.3 percentage point.

White House economists claim that the worst case scenario is a "protracted" default, which would wipe out 8,3 million jobs and plunge GDP by 6.1 percent points. The stock market would also crash nearly in half. In that scenario, the unemployment rate would increase by five percentages.

This estimate is similar in nature to that of Moody's Analytics which warned, back in March, that a prolonged default could result in the loss of more than 7,000,000 jobs.