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Speaker of the House Kevin McCarthy.
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  • If the debt ceiling is not raised by then, the US could default on the debt as soon as June 5.
  • Experts told Insider that even a short absence can cost jobs in a variety of industries.
  • Biden and McCarthy reached an agreement in principle on Saturday.

Congress has just days to raise the debt ceiling — and Americans’ jobs are on the line.

For months, House Speaker Kevin McCarthy and President Joe Biden have been at loggerheads over the best approach to raising the debt ceiling, and now those negotiations are coming down to the wire. Treasury Secretary Janet Yellen has repeatedly warned McCarthy that the United States could go into bankruptcy as early as June, when the government will run out of money to buy federal programs and pay benefits like Social Security that millions of Americans depend on.

Biden and McCarthy finally reached an agreement on Saturday night, and now they must sell the supplies to their respective parties.

The nation’s debt deleveraging is unprecedented, and there’s no way to predict exactly what will happen to the economy if lawmakers fail to raise the debt ceiling before the deadline. But Moody’s Analytics has previously estimated that even a short-term default could cost Americans more than a million jobs and likely slow the country’s post-pandemic recovery.

One scenario that Moody’s Analytics examined is a “prolonged default scenario,” which involves a default that lasts for weeks. Bernard Yaros, an economist at Moody’s Analytics, told Insider that this would happen if “the X-date hits in early June and lawmakers don’t end the crisis by the end of July.”

That translates to “7.8 million jobs lost from tip to tip,” Yaros said. Professional and business services would see about 1.4 million job losses in this scenario, and health services would lose just under 1 million jobs. Other industries, including construction, would lose more than half a million jobs in this scenario.

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Josh Bivens, chief economist at the Economic Policy Institute, told Insider that “the real situation affects every sector,” adding that “the recession is huge across the board.”

“I think the first round of impacts are just people who rely on direct payments from the government or government employee payments,” Bivens said, which could include the health care sector and “people who manage national parks.”

All discussions around a crisis can lead to economic chaos.

“Hitting the debt ceiling, even hitting the debt ceiling, is a huge risk to the nation’s economic recovery,” said Mike Konczal, director of macroeconomic analysis at the Roosevelt Institute, in a recent press release.

“It’s not just the financial markets that suffer. Any kind of default will put a lot of stress on the rest of the real economy. Social security payments will be immediately delayed,” Konczal said. “This will cause problems for many and will immediately cause consumers to panic, stop spending and slow down the economy, risking a major recession.”

At this point, it’s unclear whether Congress will reach a deal before Americans begin those consequences. McCarthy told reporters on Thursday, “Whenever you can reach an agreement, make sure you print it, post it, and then you’ve got three days before you vote. We’ve got time, we’re going to go. Do it.”

But experts warn against waiting until the last minute and risking a recession.

“If we default and it lasts three to four months, I think you can talk about the unemployment rate going up like we saw in the 2008 financial crisis,” Bivens said. “But this is all very speculative because it’s a disaster like we’ve never seen before and it’s completely avoidable.”

“Unnecessary Human Harm.”

Philip Sprehe, an economist at Geographic Solutions, told Insider that if the debt ceiling is lifted, it probably won’t cause a “major reduction in jobs,” but “there could be a sudden drop in job openings.” “Sprehe thinks the rebound will happen first in the financial sector.

And in terms of potential layoffs, Sprehe said, “It’s really going to be with the companies that are paying interest from U.S. Treasuries and are having a very difficult time with their cash flow this month to month. If they don’t get that income, then that puts their ability to do business in jeopardy and they’re going to have to go with payroll.”

But beyond the potential job cuts, a default could cut funding for federal programs that millions of Americans rely on. For example, a recent analysis from the Bipartisan Policy Center found that in the first 10 days of June — if the U.S. defaults — the government could run out of money to pay benefits including Social Security, Medicare, Medicaid and SNAP. Based on daily Treasury statements.

“If lawmakers do the unthinkable and allow the Treasury to hit the debt ceiling and fail to meet all of its obligations in full and on time, there is no economic corner left,” Yaros said. “Everything from industries like health care, especially recession-proof, will suffer, and they’ll suffer especially here because they’ve delayed payments.”

Unlike a long default scenario, a short default of “no more than a week” still means a mild recession in Moody’s Analytics’ paper.

“It’s something close to the 2001 recession that we had after the dot-com bubble, and you lose about 1.5 million jobs from the top,” Yaros said. “There’s no silver lining there. It’s a mild recession, but it’s still an unnecessary recession. And 1.5 million jobs have been lost — that’s still a huge human loss that happened unnecessarily.”

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