--- title: '''Stock Prices Will Crater'' if the U.S. Defaults on Debt, Economist Warns' description: Moody's economist Mark Zandi says that "stock prices will crater" and the economy will crash if the U.S. government defaults on its default. authors: - name: Sarah Hansen role: Senior Writer url: https://money.com/author/sarah-hansen/ bio: Sarah Hansen is a senior writer at Money covering all things personal finance. Previously, she covered economic policy and capital markets on the breaking news desk at Forbes. education: Northwestern University, New York University at_money_since: 2021 articles: 347 covers: - Economy and Politics - Banking - Business - Career Advice - Credit - Credit Cards - Education - Health and Wellness - Housing - Insurance - Investing - Lifestyle - Loans - Mortgages - Personal Finance - Professional Services - Retirement - Shopping - Taxes social: - https://www.linkedin.com/in/sarah-m-hansen/ former_staff: true editors: - name: Brad Tuttle role: Senior Editor url: https://money.com/author/brad-tuttle/ bio: Brad Tuttle is a former senior editor at Money with over 10 years’ experience covering a vast number of personal finance topics, including careers, cars, travel, budgeting, investing, insurance, credit cards, consumer psychology, real estate, banking, and shopping and deals. education: Columbia University School of Journalism, MS at_money_since: 2014 articles: 366 covers: - Economy and Politics - Banking - Business - Career Advice - Credit - Credit Cards - Education - Health and Wellness - Housing - Identity Theft - Insurance - Investing - Lifestyle - Loans - Mortgages - Personal Finance - Pets - Professional Services - Retirement - Shopping - Taxes - Technology social: - https://twitter.com/bradrtuttle - https://linkedin.com/in/brad-tuttle-834b225 former_staff: true published: '2023-01-24T21:19:08.000Z' modified: '2024-01-10T13:28:07.000Z' section: Economy and Politics tags: - News - stocks word_count: 374 canonical: https://money.com/stock-prices-crater-default-debt/ type: NewsArticle source: structured-blocks --- > **Disclosure:** We research all brands listed and may earn a fee from our partners. Research and financial considerations may influence how brands are displayed. Not all brands are included. [Learn more](https://money.com/page/disclaimer/). ![White Arrow crashing down on moon creating a big crater. Stock numbers background](https://img.money.com/2023/01/News-Stock-crater-govt-defaults-debt.jpg) With a debt limit fight looming in Congress, one leading expert is warning of catastrophic damage to the economy and major losses in the [stock market](https://money.com/how-to-buy-stocks/) if lawmakers are unable to avert a default. ## What’s happening now Last week, the United States officially hit the debt limit — the cap on the amount of money the government is allowed to borrow to meet all of its financial obligations. Those obligations include money that’s due to government bondholders and creditors as well as [Social Security](https://money.com/social-security-debt-default/) and Medicare payments, salaries for the military and [tax refunds](https://money.com/irs-warns-tax-refunds-smaller-2023/) and more. The Treasury Department is taking what Treasury Secretary Janet Yellen called “extraordinary measures” (by moving some government money around) to ensure the U.S. has enough cash on hand for the next few months, at least. Yellen says it’s difficult to say how long that extra cash will last. ## What’s next If lawmakers are unable to reach an agreement to increase the debt limit before the extra money runs out, the U.S. will officially default on its debt. Lawmakers regularly vote to increase the debt limit, and a default has never happened. This time, however, Mark Zandi, chief economist at Moody’s analytics, writes in a [new report](https://www.moodysanalytics.com/-/media/article/2023/debt-limit-brinkmanship.pdf) that the odds of defaulting are “uncomfortably high.” That's thanks to “heightened dysfunction in Congress and the large political differences gripping the nation.” ## Why it matters to you Zandi warns of “unbearable” chaos in global financial markets if lawmakers do not act to avoid a default. Here are some possibilities envisioned by Zandi: - In the short term, uncertainty about the resolution of the issue will mean higher interest rates and falling [stock prices](https://money.com/stock-market-industries-experts-watching-2023/). - If a default actually happens, interest rates will spike and “stock prices will crater with enormous costs to taxpayers and the economy,” according to Zandi. If the political impasse surrounding a default lasts more than a few weeks, Zandi estimates that stock prices would lose one-third of their value (and $12 trillion in household wealth would be lost) as the market plunges. ```json { "@context": "https://schema.org", "@graph": [ { "@type": "BreadcrumbList", "@id": "https://money.com/stock-prices-crater-default-debt/#breadcrumb", "itemListElement": [ { "@type": "ListItem", "position": 1, "name": "Home", "item": "https://money.com" }, { "@type": "ListItem", "position": 2, "name": "Economy and Politics", "item": "https://money.com/economy-and-politics/" }, { "@type": "ListItem", "position": 3, "name": "Stock Market", "item": "https://money.com/stock-market/" }, { "@type": "ListItem", "position": 4, "name": "'Stock Prices Will Crater' if the U.S. Defaults on Debt, Economist Warns" } ] }, { "@type": "WebSite", "@id": "https://money.com/#website", "url": "https://money.com", "name": "Money", "publisher": { "@id": "https://money.com/#organization" } }, { "@type": "WebPage", "@id": "https://money.com/stock-prices-crater-default-debt/#webpage", "url": "https://money.com/stock-prices-crater-default-debt/", "name": "'Stock Prices Will Crater' if the U.S. Defaults on Debt, Economist Warns", "isPartOf": { "@id": "https://money.com/#website" }, "datePublished": "2023-01-24T21:19:08.000Z", "mainEntity": { "@id": "https://money.com/stock-prices-crater-default-debt/" }, "inLanguage": "en-US", "breadcrumb": { "@id": "https://money.com/stock-prices-crater-default-debt/#breadcrumb" }, "dateModified": "2024-01-10T13:28:07.000Z" }, { "@type": "NewsArticle", "headline": "'Stock Prices Will Crater' if the U.S. Defaults on Debt, Economist Warns", "articleSection": "Economy and Politics", "image": [ { "@type": "ImageObject", "url": "https://img.money.com/2023/01/News-Stock-crater-govt-defaults-debt.jpg", "width": 2880, "height": 1920, "caption": "News-Stock-crater-govt-defaults-debt" } ], "author": [ { "@type": "Person", "name": "Sarah Hansen", "url": "https://money.com/author/sarah-hansen/", "@id": "https://money.com/author/sarah-hansen/#author", "description": "Sarah Hansen is a senior writer at Money covering all things personal finance. 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