With the federal government just days away from facing the possibility of defaulting on its debts, attention is beginning to turn to the grim realities that such an unprecedented occasion would bring, both nationally and locally.
A recent report by Moody’s Analytics found that Mississippi would be one of the worst impacted states by a federal default, where the federal government is unable to meet its existing debt obligations because Congress did not raise its borrowing limit, the debt ceiling.
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Moody’s analysis found that Mississippi’s unemployment rate would rise significantly under a prolonged breach, which it defines as one that drags on “for weeks through much of the summer with the Treasury prioritizing debt payments over other bills.” Under that dire scenario, the Magnolia State would see its unemployment rate rise to 9.2%. As of March, that rate was at 3.5%. Also, 64,000 Mississippians could lose their jobs, according to the report.
Even under a shorter breach, which Moody’s defined as lasting “no more than a week,” the impacts would be significant. Unemployment could rise as high as 6.4%, with about 14,500 jobs lost, according to the report.
A default would impact more than just federal employees. The government may be forced to pick and choose which payments it does dole out, and there could be interruptions to Social Security, Medicaid, Medicare and state and local reimbursements, along with federal wages, according to statements from Treasury Secretary Janet Yellen, who has set June 1 as a possible deadline to avoid default.
The spillover from those missed payments would likely impact people’s spending habits, leading to a wide impact in the larger economy.
One reason Mississippi would be so severely hit by a default is that it has historically been one of the most reliant, if not the most reliant, states when it comes to federal funds. According to analysis from MoneyGeek, Mississippi ranks third in the nation in its Federal Dependency metric, behind only New Mexico and West Virginia.
So, just how likely is default?
Moody’s has an answer for that as well. Its analysis finds that there is a 10% chance of default.
“If there is a breach, it is much more likely to be a short one than a prolonged one. But even a lengthy standoff no longer has a zero probability. What once seemed unimaginable now seems a real threat,” the report reads.
Leadership at the Moody’s Analytics sister company Moody’s Investors Service, a credit rating agency, seem confident that compromise will be reached, and disaster averted. When asked whether the nation’s credit rating will change after a default, William Foster, senior vice president and senior credit officer at Moody’s Investors Service, told CNN on Wednesday that they were not expecting to have to make such a decision.
“We absolutely don’t think there will be a scenario where we cross the X-date and interest payments will be missed,” Foster said. “If we did, we would obviously have to change our view on the rating.”
As of Thursday, President Joe Biden said negotiations with House Republicans were “making progress,” insisting that “there will not be a default.”
