‘Cataclysmic’ Debt Ceiling Breach Could Cost 7 Million Jobs, Moody’s Estimates

The unemployment rate could more than double, breaching 8%, if there's a prolonged standoff over the debt limit

The U.S. Capitol Building dome is seen from the Cannon House Office Building January 19, 2023 in Washington, DC.

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The U.S. economy could suffer a “cataclysmic” blow, leading to the loss of 7 million jobs, if Congress’s standoff over the debt ceiling drags on through November, according to Moody's Analytics. 

Key Takeaways

  • Lawmakers are in a standoff over the debt ceiling as with Republicans say they won't extend the borrowing limit unless cuts are made and Democrats aren't willing to bargain.
  • Lack of an agreement could bring economic repercussions including significant job losses.
  • Lawmakers likely have only until August to come up with a plan.

That’s according to an analysis by Mark Zandi, chief economist at Moody’s Analytics, who laid out several scenarios detailing how the stalemate over the government’s borrowing limit could be resolved, and what the economic impact of each of them would be. 

In the worst case, Republicans and Democrats fail to reach an agreement, leaving the U.S. government unable to pay all of its obligations and creditors. A financial crisis on par with the Great Recession would spiral out of control and lead to mass unemployment, Zandi predicted. 

“If lawmakers are unable to increase or suspend the debt limit before the Treasury fails to make a payment later this summer, the resulting chaos in global financial markets will be overwhelming,” Zandi wrote. 

The U.S. government exceeded its congressionally set borrowing limit in January, and the Treasury has been using a series of accounting tricks called “extraordinary measures” to run the government, pay creditors, and make obligatory payments like Social Security benefits. 

Those measures will last only for so long—Zandi estimated mid-August—at which point the government would be unable to make all of the payments it’s supposed to, leading to a possible debt default and a crisis. 

Republicans who took control of the House of Representatives this year say they won’t agree to raise or suspend the borrowing limit unless Democrats agree to spending cuts. President Joe Biden has said the debt limit should be raised unconditionally, and that he wouldn’t negotiate. 

Lawmakers, well aware of the disastrous consequences of a government default, have always agreed to raise or suspend the debt ceiling in the past, and have done so 78 times since 1960—often at the last minute and after a great deal of haggling. Debt ceiling standoffs in 2011 and 2013, however, came close enough to disaster to rattle financial markets and cause economic damage. 

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  1. Moody's Analytics. "Going Down the Debt Limit Rabbit Hole."

  2. White House. "Press Briefing by Press Secretary Karine Jean-Pierre, January 17, 2023."

  3. Department of the Treasury. "Debt Limit."