Economists, activists warn lawmakers of looming debt default if Congress cannot agree to raise the debt ceiling

WASHINGTON — A Senate subcommittee on Banking, Housing and Urban Affairs heard from witnesses Tuesday about the consequences of not raising the $31.4 trillion debt ceiling amid a standoff between Republican lawmakers and the White House over a bill that Will allow the federal government to continue. To pay off your loan obligations.

New one reports The release by financial services company Moody’s Analytics, which outlines alternatives to the debt-limit bill, was a key feature of the Subcommittee on Economic Policy hearing. Moody’s chief economist Mark Zandi said an imminent default would be “a catastrophic blow to an already fragile economy.”

“Global financial markets and the economy will recover, and even if resolved quickly, Americans will pay for this default for generations, as global investors will rightly believe that the federal government The U.S.’s finances have been politicized and there may come a time when they “will not be paid what they are owed,” Zandi said in remarks released before the hearing.

The Moody’s analyst also said a Republican budget proposal aims to include large spending cuts. Reduce fiscal expenditure to 2022 level In 10 years the next year would signal a recession and result in the loss of over 2.6 million jobs.

“Since Republicans have said there will be no tax increases, and Social Security and Medicare benefits will remain untouched, achieving a balanced budget will probably mean all but slashing non-defensive discretionary spending and the Medicaid program,” he said. Said. “Given the dramatic reduction in government spending in this scenario and the already fragile economy, the economy faces a recession in 2024. The long-term growth prospects of the economy have also diminished meaningfully, given the severe fiscal restraint.”

Some Republican members of Congress, led by House Speaker Kevin McCarthy, R-Calif., are holding off on a debt ceiling deal to negotiate with the White House on budget priorities, but the U.S. Treasury Department is all tentative to delay default in the meantime. Will end the measures. The Congressional Budget Office has warned that unless lawmakers raise the debt limit in July and September.

As time runs out, a growing number of lawmakers are weighing the Treasury’s ability to avoid debt-limit breaches by prioritizing payments to Treasury bondholders, according to the report. Analysts called the solution “horribly misguided”.

Zandi said of the workaround, “It will be challenged in the courts.” “Bond investors, unsure of how this legal uncertainty will be resolved, will demand very high interest rates in compensation. Furthermore, politically, it seems unimaginable that bond investors, including many foreign investors, Americans will get their money before seniors, the military, or even the federal government’s electricity bill for a long time.”

Douglas Holtz-Eakin, president of the American Action Forum, a right-wing financial policy organization, told senators that the US would effectively hand China economic power if it defaulted on its debt and threatened its international credibility.

“The notion that we can abandon the Treasury’s credit standing up to the world and not find another reserve currency,” Holtz-Eakin said. “They will, and then we’ll hand that opportunity over to China. And at this point, there’s no reason to do that.”

In her opening remarks, Holtz-Eakin also said that reducing the default would have “serious and adverse economic effects”.

“It will drive down stock prices, reducing the wealth of many taxpayers. It will reduce economic confidence, which in turn could reduce consumer spending. It will raise interest rates, costing taxpayers billions of dollars in interest payments.” will leave it on the hook. And it will increase the odds of an accidental default,” he said.

Sen. Elizabeth Warren, chair of the economic policy subcommittee, likened Republican pushback on the debt-limit decision to refusing to pay a credit card bill.

“House Republicans have decided to use the debt ceiling to hold our government and our economy hostage,” the Massachusetts Democratic senator said during the hearing.

“They’re demanding drastic cuts in government spending, investment in the American economy, investment in American workers, or they won’t allow the United States to pay off the debts that it’s already owed, you know, A little like running up the bill on a credit card and then announcing that you have a new budget plan: We’re not going to pay the credit card bill.”

In her opening remarks, Warren said, “House Republicans are not concerned about the upcoming debt ceiling deadline.” “Instead, they seem extremely thrilled to use this as leverage to demand tax cuts for billionaires and giant corporations.”