Scenario 1: We get an 11th-hour agreement that avoids default but still unsettles the markets. This scenario wouldn’t be a complete disaster, but it could still hurt. You see, even narrowly avoiding default could increase borrowing costs and hurt investment, cutting GDP growth by 0.3 percentage points and employment by about 200,000 jobs. A similar situation in 2011 and 2013 led to a downturn in the economy, so this isn’t something to be taken lightly.
Scenario 2: The standoff continues until the last minute, rattling the markets even further. If the drama extends to within a day or two of the June 1 deadline, stocks could fall significantly. In this scenario, we might see a repeat of 2011, with GDP being slashed by more than 2 percentage points and employment falling by a few hundred thousand jobs. This could potentially push an already fragile economy into a recession
Scenario 3: The third scenario involves some give and take. If Biden agrees to $2.4 trillion in spending cuts as demanded by the Republicans, it could lead to a severe recession. While it might resolve the immediate debt ceiling crisis, it would lead to long-term economic damage. This scenario, as you can guess, is the most severe and is definitely the one we want to avoid
TOPICS AND TIMESTAMPS:
Debt Ceiling 0:00
Charts 4:35
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