CEA Identifies Three Potential Scenarios of Economic Fallout from Debt Ceiling Standoff

The White House Council of Economic Advisers (CEA) has identified three potential scenarios of varying severity that could result from the current debt ceiling standoff between the Biden Administration and House Republicans. In a blog post published Wednesday, the CEA warned of the potential economic fallout should the government fail to raise the nation’s debt limit.

The CEA identified three scenarios: “brinksmanship,” in which negotiations run up until the June 1 deadline set by the Treasury; a “brief” default, in which the deadline is tripped but then resolved within a week; and a “protracted” default, in which the U.S. fails to raise its borrowing levels for more than a quarter.

The CEA warned that a protracted default would result in a Great Recession-like doomsday scenario wherein 8.3 million people would lose their jobs and the stock market would plunge. The CEA also warned that the economic damage would be felt not just on Wall Street, but also on Main Street.

The Biden Administration has said it will not negotiate over the full faith and credit of the country, while House Republicans insist they will not vote to increase the debt ceiling without steep spending cuts. With the June 1 deadline looming, the future of the U.S. economy hangs in the balance.

Experts warn that failing to give Treasury more borrowing room before it defaults would have catastrophic fallout, and the CEA’s blog post serves as a stark reminder of the potential economic damage that could result from a government debt default. The Biden Administration and House Republicans must come to an agreement soon in order to avoid a potentially devastating economic crisis.