Debt limit warning to investors from Moody’s

Mark Zandi, Chief Economist at Moody’s Analytics, warned that investors are being too optimistic about the political conflict over the US debt limit. Zandi said this political strife raises the risk of a ‘catastrophic default’.

Zandi said that politicians are very confident that they will make timely agreements on the debt ceiling and avoid default, which sends false signals to politicians.

Stating that stocks will lose a third of their value and 6 million Americans may be unemployed as a result of the default of the USA, Zandi predicted that the Treasury will exhaust its financing options in the beginning of October with the most correct claim.

Zandi stated that even if Congress takes swift action to meet the Treasury’s federal obligations, it may be too late for sensitive economics and there may be calm.

Zandi said that if there is no agreement a few weeks after the default, there could be damage to the economy similar to the 2008 global financial crisis. According to this scenario, the economy will contract by 4 percent, approximately 6 million jobs will be lost, and the assets of the household may melt by 12 trillion dollars with the loss of value in the stocks.