$ 80 billion in social security checks would be delayed by US defaults: Moody’s

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What would you like to know

  • Failure to raise the debt ceiling could mean a pause in Social Security and Veterans Affairs benefits, as well as a drop in the stock market.
  • Treasury Secretary Yellen said 50 million Social Security recipients may temporarily stop receiving checks.
  • Mark Zandi of Moody’s Analytics says the economic scenario would be “cataclysmic” if a default lasted until November.

What’s worse: a government shutdown or a failure to raise the debt ceiling? A shutdown looks more serious, but not raising the debt limit would mean the first U.S. government default in history, and all the complications that entails.

“The federal government should significantly reduce spending, [which] would likely mean delaying about $ 80 billion in payments due Nov. 1 to Social Security recipients, veterans and active-duty military personnel for two weeks, ”writes Mark Zandi, chief economist at Moody’s Analytics in a new report.

“Financial markets would surely be disrupted” by rising interest rates and falling stock prices. Global investors would sell or stop buying US debt, and the Federal Reserve should support purchases of Treasury bonds, according to Zandi.

If the stalemate lasted through November, writes Zandi, the Treasury would have to eliminate a cash deficit of around $ 200 billion, which would equate to an annualized reduction that would exceed 10% of GDP. “This economic scenario is cataclysmic.

Moody’s Analytics simulations of a US government default show GDP drops nearly 5% peak-to-trough on an inflation-adjusted basis, 6 million jobs lost and an unemployment rate hitting nearly 9 %.

Treasury Secretary Janet Yellen is very concerned.

In a recent Wall Street Journal editorial, she warned that “nearly 50 million seniors could stop receiving Social Security checks for a while, troops might not get paid”, millions of families who depend of the monthly child tax credit could see delays, and “the current economic recovery would turn into a recession, with billions of dollars in growth and millions of jobs lost….

“The higher cost of borrowing would fall on consumers. Mortgage payments, auto loans, credit card bills – anything bought on credit would cost more after default. “


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