We begin today with Irina Ivanova of CBS News explaining which state would feel the effects of a default on the national debt most severely.
Washington, D.C., where 1 in 4 jobs are tied to the federal government, would be hardest hit, becoming the “poster child” for a financial disaster, they said. States with large federal facilities, such as national laboratories or military bases, would be next in line. That includes Hawaii, which is home to the United States Pacific Command and to 11 military bases; Alaska, with vast federal land holdings; and New Mexico, home to Los Alamos National Laboratory.
“While the public sector typically serves as a stabilizing force, in the case of a breach it supercharges its economic fallout,” wrote Moody’s Analytics economists Mark Zandi, Adam Kamins and Bernard Yaros.
Also vulnerable are regions that rely heavily on federal spending, including those with defense contractors. “Professional services firms suffer, hurting white-collar support firms in and around the Beltway, particularly Northern Virginia,” Moody’s said. “Aerospace is also hurt, impacting states including Connecticut, Kansas and Washington.”
Even a short debt ceiling breach, in which the government defaults for less than a week before lawmakers raise the government’s borrowing limit, would likely push the economy into a recession, according to Moody’s. In this scenario, 1.5 million people would lose their jobs, pushing unemployment from its current rate of 3.4% to 5%, while nation’s gross domestic product would shrink by 0.7%.