Who wins if the debt ceiling plan passes? Everyone. Here’s why.

The greater good. This is the lesson of the agreement on the debt ceiling if it passes, as expected, according to economists.

Senate Majority Leader Chuck Schumer and Minority Leader Mitch McConnell are optimistic about a quick passage before June 5, the day Treasury Secretary Janet Yellen said the country will run out of funds to pay all its obligations on time.

Yes, some senators are angry about defense spending, Supplemental Nutrition Assistance Program work requirements, IRS funding, student debt and easier energy permits, but, ultimately account, everyone wins with an increase in the debt ceiling. The alternative – a default and a downgrading of ratings – would have been “catastrophic” for the economy, jobs and the stock market.

The deal is “a win for both parties and a loss for both parties and is in the true spirit of compromise,” said Brian Marks, executive director of the entrepreneurship and innovation program at the business school. from the University of New Haven. “You could say they acted in the best interest of the nation. There is no free fall here.

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What catastrophe will we avoid by accepting a compromise?

Failure to lift the debt ceiling would put more than 8 million Americans out of work, US Treasury Secretary Janet Yellen said last month, citing estimates from the White House Council of Economic Advisers (CEA). Business and consumer confidence would fall precipitously and the value of the stock market would be reduced by around 45%, “wiping out years of retirement and other household savings”, she said.

Moody’s Analytics estimated that more than 7 million Americans would lose their jobs, pushing the unemployment rate to over 8%, and $10 trillion in household wealth would be wiped out.

Gregory Daco, chief economist at EY-Parthenon, part of accounting firm Ernst & Young LLP, estimated that 5% of economic growth would be lost due to severe cuts in public spending and a financial crisis.

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What happens instead if the current deal is finalized?

Very close to nothing, and almost everything returns to the status quo. This is excellent news for the economy, employment and the stock market. All of these work best with no surprises or bumps, Marks said.

The deal limits government spending only slightly, which should keep the overall economic picture largely unchanged.

Daco estimates the hit to economic growth will come next year, shaving off 0.3% growth, then another hit of 0.2% in 2025. Around 250,000 jobs would be lost, pushing the unemployment rate up slightly towards 4.8% at the end of 2024 from 4.6%. The Federal Reserve last month predicted an unemployment rate of 4.5% at the end of this year and 4.6% next year.

The small fiscal tightening should also help the Fed fight inflation. Daco estimates that the tightening of the belt is equivalent to almost a small increase in the benchmark short-term federal funds rate, which currently stands between 5% and 5.25%. The Fed aggressively raised interest rates to calm inflation by making borrowing more expensive to reduce money demand and spending.

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Although the fate of student loan relief remains in the hands of the Supreme Court, the end of interest forbearance on pandemic-related student loans at the end of the summer could have a short-term impact. on the economy.

The debt ceiling plan prohibits more pauses on student loans, which means federal student loan repayments and interest accumulation would likely start again around September 1. Even if the Supreme Court rules that student loan forgiveness can go ahead as planned, there are 25 million Americans who would still have outstanding balances.

“Ending this forbearance will reduce annual personal disposable income by $38 billion,” said JP Morgan economist Michael Feroli. “Given that the beneficiaries of this policy are likely to have higher marginal propensities to consume, it is likely that most of the reduction in income will be followed shortly thereafter by a similar reduction in expenditure.”

Although the Senate voted on Thursday to pass a bill to reverse President Joe Biden’s student debt cancellation and immediately send borrowers back for repayment, Biden said he would veto it, leaving the agreement on the debt ceiling in the foreground.

Senator Minority Leader Mitch McConnell of Ky., right, listens as House Speaker Kevin McCarthy of California speaks to reporters after a meeting with President Joe Biden and congressional leaders about the cap on debt at the White House, Tuesday, May 16.  2023, in Washington.  (AP Photo/Evan Vucci) XMIT ORG: DCEV127

Senator Minority Leader Mitch McConnell of Ky., right, listens as House Speaker Kevin McCarthy of California speaks to reporters after a meeting with President Joe Biden and congressional leaders about the cap on debt at the White House, Tuesday, May 16. 2023, in Washington. (AP Photo/Evan Vucci) XMIT ORG: DCEV127

How will objectors in the Senate be satisfied?

Although Schumer wants to fast-track the deal, it will require all 100 senators to agree and give “unanimous consent” for the bill to bypass normally slow Senate procedures, but that could prove tricky with at least three senators wanting propose amendments. If those amendments pass, the whole deal has to go back to the House for another vote, jeopardizing the deadline.

McConnell’s strategy is to allow some amendments to get a vote, but perhaps only those doomed to not delay agreement, reports suggest. If the amendments are not adopted, nothing in the proposal is modified and the process continues to have the agreement adopted. Most of the senators with objections admitted that they did not have the votes to pass an amendment that would delay passage.

Another reason some have suggested the Senate will end this drama by Friday: The Senate is recessed for a three-day weekend after Friday. Only the House should sit on Monday.

Medora Lee is a money, markets and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and sign up for our free Daily Money newsletter for personal finance tips and business news Monday through Friday mornings.

This article originally appeared on USA TODAY: After the debt ceiling plan is passed, how the greater good comes into play

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