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White House warns of economic fallout if US defaults

As Democrats and Republicans spar over national spending, the White House issued a dire warning on Wednesday: if the United States defaults on its debt payments, the stock market will crash and unemployment will soar.

The US government’s failure to pay its financial obligations might result in eight million job losses this summer and a six percent decline in GDP, according to the President’s Council of Economic Advisers, a prominent federal advisory body.

According to the council, the stock market could decline by 45% in the third quarter.

The economists predicted that even a slight halt in payments would result in higher unemployment when the economy entered a downturn.

Republicans in the lower chamber of Congress, which they control, and President Joe Biden are at odds over government spending and the national debt.

Republicans have been urged by the Democratic president to increase the nation’s debt ceiling or the maximum amount of debt it is permitted to incur.

Republicans in the House of Representatives, however, have stated that they will not do so absent a more comprehensive agreement to reduce government spending.

There isn’t much time for negotiations between the parties: According to the Treasury Department, the nation will approach its debt ceiling on June 1 and be forced to make significant cuts to federal spending, including on debt repayment.

Raising or lowering the debt ceiling, a US-only practice was long seen as a formality as more significant issues with public debt and national spending were worked out behind the scenes.

Republican stances began to harden under Barack Obama’s administration, however, as they attempted to utilize the vote as a means of gaining political advantage.

Technically, the United States actually exceeded its debt ceiling in January with more than $31 trillion in outstanding debt, but for the time being, the government has been able to get by with a variety of accounting maneuvers known as “extraordinary measures.”

Tuesday’s meeting with party leaders in Congress has been requested by Biden.

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