The U.S. government is hurtling toward its first-ever default on the debt that could be catastrophic for the economy, destroying more than 7 million jobs and triggering a severe recession.

That's according to a recent analysis from Moody's Analytics, which predicted a disastrous hit to the economy equivalent to the 2008 financial crisis in the case of a prolonged breach of the federal debt ceiling. 

In that bleak scenario, the unemployment rate would skyrocket above 8%, GDP – the broadest measure of goods and services produced in the nation – would plunge by 4% and stock prices would fall by nearly 20%, wiping out $10 trillion in household wealth, according to the report, led by Moody's chief economist Mark Zandi.

"The blow to the economy would be cataclysmic," Zandi wrote.

WHAT IS THE DEBT CEILING, AND WHAT DOES IT MEAN FOR YOU?

Even in the case of a brief debt default that is quickly reversed, "significant damage" will have already been done to the economy, the analysis shows. GDP would slide by about 0.5%, while unemployment would increase by 1 million Americans to about 5%. There would also likely be a sell-off in financial markets, but it would settle after lawmakers struck a deal to raise or suspend the debt limit.

"The timing could not be worse for the economy; even without the specter of a debt limit breach many CEOs and economists believe a recession is dead ahead," Zandi said. "With the Federal Reserve ramping up interest rates in an effort to quell wage and price pressures, avoiding a recession would be difficult even if nothing else went wrong."

The clock is running out for lawmakers to lift the debt limit. Treasury Secretary Janet Yellen reiterated a warning Wednesday that the country will run out of cash to pay its debts in early June, potentially as soon as June 1.

"It’s highly likely that we would run out of resources to meet all the government’s obligations in early June and possibly as early as June 1," she said during a conference sponsored by the Wall Street Journal. "We no longer see very much likelihood that our resources will enable us to get to the middle or end of June."

WHO WOULD BE HIT THE HARDEST BY A US DEBT DEFAULT?

The debt ceiling, which is currently around $31.4 trillion, is the legal limit on the total amount of debt that the federal government can borrow on behalf of the public, including Social Security and Medicare benefits, military salaries and tax refunds. 

The analysis comes amid a prolonged standoff over the debt limit. House Republicans passed a bill that raises the debt limit by $1.5 trillion, extending the current ceiling through March 2024, but coupled it with various spending cuts. President Biden and his fellow Democrats, who control the Senate, prefer a "clean" debt ceiling bill without spending cuts.

The White House is now hosting near-daily talks with Republicans as Washington races to strike a budget agreement before the pivotal June deadline. House Speaker Kevin McCarthy, R-Calif., struck a more optimistic tone on Monday after the latest round of talks with the president, indicating that negotiators have narrowed their focus to a smaller group of key issues in order to strike a compromise. 

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"We’re getting closer. Don't give up on us," McCarthy told reporters on Monday, adding a "circle" of issues is becoming "smaller, smaller, smaller."

Biden likewise called the meeting "productive," and signaled that talks would continue in coming days.

"We reiterated once again that default is off the table and the only way to move forward is in good faith toward a bipartisan agreement," the president said in a statement

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If the U.S. failed to raise or suspend the debt limit, it would eventually have to temporarily default on some of its obligations, which could have serious negative economic implications. Interest rates would likely spike, and demand for Treasurys would drop; even the threat of default can cause borrowing costs to increase, according to the Committee for a Responsible Federal Budget.

While the U.S. has never defaulted on its debt before, it came close in 2011, when House Republicans refused to pass a debt-ceiling increase, prompting rating agency Standard and Poor's to downgrade the U.S. debt rating one notch.