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Damage from US debt default could cascade across global economy

Washington, May 22 (Prensa Latina) A US debt default, a threat that hovers over the country nowadays given disagreements among congressmen, could bring about a gigantic economic damage, according to experts.

According to Moody’s Analytics Company, “the economic recession would be comparable to the global financial crisis” in 2008, where nearly eight million people got unemployed and an unemployment rate would rise to 8%.

In this scenario, several U.S. states would be impacted disproportionately, with unemployment estimated to exceed 9% in Alabama, Illinois, Ohio and Mississippi, while soaring to nearly 11% in Michigan.

The turmoil is likely to depress stock prices by nearly 20%, vaporizing $10 trillion in household wealth held in different plans, and is likely to raise borrowing costs for households and businesses.

“Most state economies will be hit hard whether the debt limit is breached, although the pain would vary,” Moody’s Analytics economists reported.

Washington, D.C., where one in four jobs is tied to the federal government, would be hardest hit, they said.

Even a brief debt ceiling breach, in which the government defaults less than a week before lawmakers raise the borrowing limit, would likely push domestic economy into a recession, Moody’s estimated.

In this scenario, about 1.5 million Americans would lose their jobs, pushing unemployment from 3.4% to 5% while the nation’s Gross Domestic Product (GDP) would contract by 0.7%.

The federal government would have no choice but to cut its spending by about $150 billion and, “as these cuts damage the economy, the impact on growth would be overwhelming”.


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