House Republicans and the Biden administration appear to be getting more serious about the debt ceiling, with more talks scheduled for this week. This may give comfort to the camp in D.C. and on Wall Street that believes a default – and economic catastrophe – will be avoided.
Save for those few economic nihilists who believe a default is a legitimate bargaining tool (looking at you, Donald Trump), everyone else understands that a U.S. default is the absolute worst-case scenario.
What are the other possibilities, then? J.P. Morgan researchers have published an extensive Q and A on what happens if the worst case comes true (excerpted at length in the Financial Times). It's worth looking at if you happen to hold government bonds, money market funds or other interest rate-sensitive investments.
As for an “X-Date,” that dreaded day when Uncle Sam runs out of cash, the House of Morgan estimates it will come on June 7. That's not a lot of time for the negotiating parties to reach a deal, present it to Congress and then get the votes to approve it.
Recall that even with the wolf at the door, and leadership pushing a deal, Congress can still balk. In 2008, with a major economic crisis looming, the House rejected a bailout deal intended to keep a crisis from becoming a calamity. Then, it was anti-Wall Street Democrats and a majority of Republicans who refused to support the deal. Unsurprisingly, markets tanked. As Moody's Analytics noted, “[i]t is difficult to fathom that lawmakers would allow things to get to this point, but as the TARP experience highlights, it cannot be dismissed.”
What about this time? Are the nihilists in charge, or are there still enough (sane) adults in the room?
Again, from J.P. Morgan's research team, we have this: an “actual default” where the federal government doesn't pay the interest or principal to bondholders has a “near 0%” chance of happening.
The most likely case: the worthies back away from the edge of doom and either suspend the debt ceiling to give themselves more time to haggle over spending or approve a deal that raises it while also incorporating a mix of GOP House and White House budget ideas.
In other words, neither side gets everything it wants, but they make progress toward some degree of fiscal sanity. The true believers on the left and right will shriek about sellouts compromising principles. Better for them to yell at the clouds than to have an economic meltdown in the real world.
The opinions expressed in this article are those of the author and do not necessarily reflect the positions of American Liberty News.
Yeah, just pass a law abolishing the debt ceiling so that Biden and his party can print and spend however much money they want without limit. Now THAT won’t cause any kind of economic turmoil! No, siree! the dollar will stay just as strong as ever!
When is the public going to realize that our national debt will never get paid off, or even down. The politicians know this, and they just keep adding those phony numbers to the lie. As long as we don’t have a real depression like we had back in the 1930’s, where the people really suffered, I know, I lived it, the voters will just keep going along with whatever the politicians want to do.
The vast majority of the “public” are gleefully ignorant and will remain so by the control the ALWAYS LYING m s m. That is until the explosion happens that they cant cover up!
The crash is inevitable sooner or latter, the vile GLOBS have to get their CBDC total totalitarian control system set up soon!