The light in the cupola of the Capitol Dome is illuminated, indicating that work continues in Congress, in Washington on Oct 6, 2021. (J. SCOTT APPLEWHITE / AP)

WASHINGTON - White House economists on Wednesday warned of a potential global financial crisis if US Congress fails to raise the federal government's debt limit before the country is expected to default on the national debt.

"A default would have serious and protracted financial and economic effects. Financial markets would lose faith in the United States, the dollar would weaken, and stocks would fall," economists at the White House Council of Economic Advisers led by Cecilia Rouse said in a blog post.

"The US credit rating would almost certainly be downgraded, and interest rates would broadly rise for many consumer loans," the economists said, adding these and other consequences could trigger a US economic recession.

A default would send shock waves through global financial markets and would likely cause credit markets worldwide to freeze up and stock markets to plunge. Employers around the world would likely have to begin laying off workers.

Economists at the White House Council of Economic Advisers

Meanwhile, the global economy, which relies on a strong US economy, could begin to slide into a financial crisis and a recession, as the consequences of a US default could accelerate rapidly if not resolved, they noted.

"A default would send shock waves through global financial markets and would likely cause credit markets worldwide to freeze up and stock markets to plunge. Employers around the world would likely have to begin laying off workers," said the economists.

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Noting that the 2008 financial crisis had ripple effects throughout the global economy that ricocheted back to US shores, they believed that a global financial crisis driven by a US default "has the potential to be even worse", as the global economy is not fully recovered from the COVID-19 pandemic.

"The debt ceiling is not and should not be used as a political football. The consequences are too great," the economists concluded.

The warning from the White House economists came after US Treasury Secretary Janet Yellen said on Tuesday that she fully expected the US economy to fall into a recession if Congress failed to raise the debt limit.

Yellen has told US lawmakers that they have to raise or suspend the debt limit by Oct 18 when the US Treasury Department is likely to exhaust its "extraordinary measures".

As part of a bipartisan budget deal enacted in August 2019, Congress suspended the debt limit through July 31. After the debt limit was reinstated on Aug 1, US Treasury Department began using "extraordinary measures" to continue to finance the government on a temporary basis.

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The debt limit, commonly called the debt ceiling, is the total amount of money that the US government is authorized to borrow to meet its existing legal obligations, including social security and medicare benefits, interest on the national debt, and other payments.