The United States could plunge into an immediate recession if Congress fails to raise the debt ceiling and the country defaults on its payment obligations this fall, according to...Moody’s Analytics...

Lawmakers in both parties agree that the debt ceiling must be raised to avoid economic calamity, but their standoff over how to do so has intensified. Despite the national debt increasing by close to $8 trillion under President Donald Trump, Republicans have been adamant that they will refuse to help Democrats increase the debt ceiling, in opposition to President Biden’s spending plans.

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“This economic scenario is cataclysmic. … The downturn would be comparable to that suffered during the financial crisis” of 2008, said the report, written by Zandi and Bernard Yaros, assistant director and economist at Moody’s Analytics.

The debt limit is the maximum amount of debt that Treasury can issue to pay the country’s bills. It was suspended from 2019 through the beginning of last month under a deal reached during the Trump administration. If Congress fails to increase the debt limit, Treasury would be unable to pay debts as they come due. Treasury Secretary Janet L. Yellen said earlier this week that such a default would be unprecedented in U.S. history. Moody’s “best estimate” is that this date is Oct. 20, although Treasury has not given a more precise day.

At that point, Treasury officials would face excruciating choices, such as whether to fail to pay $20 billion owed to seniors on Social Security, or to fail to pay bondholders of U.S. debt — a decision that could undermine faith in U.S. credit and permanently drive federal borrowing costs higher.

Failure to raise the debt limit would have catastrophic impacts on global financial markets. Interest rates would spike as investors demand a higher rate of return for the risk of taking on U.S. debt given uncertainty about repayment. An increase in interest rates would ripple through the economy, raising costs not only for taxpayers but also for consumers and other borrowers. The value of the U.S. dollar would also decline long term as investors questioned the security of purchasing U.S. treasuries. The cost of auto and home loans would rise.

“Stock prices would be cut almost in one-third at the worst of the selloff, wiping out $15 trillion in household wealth,” the Moody’s report finds. 

Both parties remain confident a debt ceiling breach will be avoided. Both White House officials and GOP lawmakers have insisted in recent days that the debt ceiling will be raised or suspended. But they are sharply divided over how that will occur.

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Historically, both parties have come together to ensure the debt ceiling gets raised. Turning it into a political pawn would jeopardize international faith in the U.S. government, driving the cost of borrowing higher, even if it is not breached.