Rewritten Article:
Moody's Predicts Massive Job Losses in Case of US Default
Moody's Analytics, a renowned financial research firm, has issued a report stating that a potential U.S. default on its debt could trigger a severe recession and eliminate nearly 6 million jobs. This economic downturn would also result in significant losses for U.S. households, with stocks plummeting by approximately 33%.
According to Moody's Chief Economist Mark Zandi, the economic situation would be disastrous if the U.S. fails to meet its debt obligations, with households losing around $15 trillion in wealth.
The Goldman Sachs Group Inc. warned that a U.S. default could last for up to four months, leading to a decrease in U.S. GDP of around 4%. Global financial markets would face instability, with investors losing trust in U.S. Treasury bonds, potentially leading to a credit freeze.
The ongoing standoff between the U.S. government and lawmakers over raising the debt ceiling has not alarmed financial markets as much as anticipated, but tensions remain. Investors seem optimistic that a resolution will be reached before any drastic consequences ensue.
However, Zandi cautions political leaders against underestimating the gravity of the situation, as their optimism, and consequent delay in addressing the issue, could result in significant errors.
The Congressional Budget Office (CBO) recently estimated that the Treasury Department may run out of cash by October if the debt ceiling is not raised. Failure to act could lead to delayed payments to federal contractors, Social Security beneficiaries, and active-duty military personnel.
Moody's warned that if the crisis persists past November, deep budget cuts may be necessary to address the mounting financial pressures.
In addition to the immediate economic effects on the U.S., a default could potentially have long-term consequences. Zandi suggests that Americans will pay the price for generations due to the erosion of investor confidence in U.S. finances and the potential politicization of the debt crisis.
Enrichment Insights:
- According to Moody's analysis and other sources, a U.S. debt default could trigger the following consequences: a. GDP Reduction: A default could potentially decrease U.S. GDP by approximately 4% over a four-month period [1]. b. Stock Price Decline: Stock prices could plummet by around 33% [1]. c. Job Losses: Companies might cut nearly 6 million jobs [1]. d. Global Financial Instability: A default would likely cause instability in global financial markets, potentially leading to a credit freeze [1]. e. Currency Devaluation: The U.S. dollar could depreciate significantly, leading to an exodus of investments by foreign investors [1]. f. Recession Risk: The likelihood of a recession would significantly increase, with former Treasury Secretary Jacob Lew stating that default would make a recession almost certain [4]. g. Increased Borrowing Costs: Businesses and homeowners would face higher borrowing costs due to potential downgrades by credit rating agencies [4]. h. Consumer Confidence Drop: A decline in consumer confidence could prompt a shock to the U.S. financial market and potentially push the economy into a recession [4]. i. Loss of Critical Functions: The government may be unable to provide critical services such as issuing Social Security benefits, maintaining national defense, and supporting public health systems [1].
These potential consequences highlight the severe repercussions that a U.S. debt default could have on the global economy.
