Moody's warns investors about debt limits

Mark Zandi, chief economist at Moody’s Analytics, warned that investors are being overly optimistic about the political battle over the U.S. debt ceiling. He said the political battle is increasing the risk of a “catastrophic default.” He said politicians are being overconfident that they will reach a timely agreement on the debt ceiling and avoid a default, sending the wrong signals to politicians. Zandi said a U.S. default could see stocks lose up to a third of their value, 6 million Americans lose their jobs, and the Treasury’s best estimate is that it will exhaust its financing options in early October. Zandi said that even if Congress acts quickly to ensure the Treasury meets its federal obligations, it may be too late for the fragile economy and a recession could occur. Zandi said that if there is no agreement within weeks of a default, the economy could suffer damage similar to the global financial crisis of 2008. Under this scenario, the economy would shrink by 4 percent, about 6 million jobs would be lost, and household assets would lose $12 trillion due to the devaluation of stocks.