The plan proposed by the Republican speaker of the House of Representatives, Kevin McCarthy, to increase the borrowing limit of the US federal government – in exchange for reducing public spending – would have particularly negative consequences for the US economy, warns a memo that published yesterday Monday by Moody’s Analytics.

According to the rating agency’s research directorate, if Mr. McCarthy’s proposed plan, unveiled on April 17, were to become law as it is, it would lead to a 0.6 percent reduction in potential U.S. economic growth in 2024 and the destruction of 780,000 jobs. .

Unemployment would reach 4.6%, up from 3.5% in March 2023 if his plan were implemented instead of the new unconditional debt limit scenario.

US President Joe Biden favors this last option. The octogenarian Democrat argues that the American debt is due to policies implemented by previous administrations, so it cannot be turned into a subject of political debate and controversy.

Stressing, moreover, that the risk of recession remains present in the US, Moody’s Analytics calculates that if Mr. McCarthy’s plan were implemented, it would “significantly increase” the possibility that the economy would take this turn: “the cuts in public spending” it predicts would be “strong headwinds to growth in the near term,” the text explains (p. 6).

Several analysts have warned in recent days against the risk of the U.S. hitting the debt wall sooner than expected, largely due to a drop in tax revenue expected at the end of April, traditionally the country’s tax-filing season.

Moody’s thus expects default risk to arise “probably in early June” and notes that investors are taking it seriously, as evidenced by the costs of insurance to cover against the risk of default by the US federal government, which have reached its highest level since 2011.

The possibility of the US declaring an unprecedented default would be “catastrophic”, a self-inflicted wound, the White House says.

At the beginning of March, the president of the central bank (Fed), Jerome Powell, reminded that the increase in the debt limit is “the only solution in due time that allows us to pay all our bills”, stressing that otherwise the consequences would be “difficult to estimate” but could be “extremely negative” and cause “long-term damage” to the country.

The US is one of the few countries in the world where parliament not only votes on the annual budget deficit, which increases the public debt, but also on the debt limit, which is often exceeded.

Since the early 1960s, this limit has been exceeded 78 times, according to the finance ministry. Although in theory it was a formality, the votes on the issue turned during Barack Obama’s presidency into a showdown between Republicans and Democrats.