White House Warns of 'Severe Damage' to Economy

New analyses by both the Congressional Budget Office and the U.S. Department of the Treasury suggest the United States is rapidly approaching the date at which the government can no longer pay its bills. History is clear that even getting close to a breach of the U.S. debt ceiling could cause significant disruptions to financial markets that would damage the economic conditions faced by households and businesses.

A continued breach of the U.S. debt ceiling could result in "significant disruptions" to financial markets and "severe damage" to the economy, including more than 8 million job losses, the White House has warned.

In a report published on May 3, the White House Council of Economic Advisers stressed that a historic U.S. default on its debt obligations-referred to as the "X-date"-is fast approaching, and such a move would see the economy "quickly shift into reverse." The warning comes just days after Treasury Secretary Janet Yellen said the United States could default on its financial obligations as early as June 1 unless Congress takes action to raise the nation's $31.4 trillion debt ceiling.

White House economists warned of three possible scenarios that would likely happen if negotiations between Republicans and Democrats regarding the debt limit are further prolonged: brinksmanship, a short default, and a protracted default.

Under the first scenario, in which the limit is approached but a default is avoided, 200,000 jobs could be wiped out and 0.3 percentage points would be knocked off the annual GDP, and the unemployment rate would rise by 0.1 percentage points.