Treasury bills that mature in one month recently sold off, while recent widening in credit-default-swap spreads tied to U.S. Concerns that its arrival is imminent have emerged in some corners of the market, such as trading of one-month TreasurysĪnd credit-default swaps. The deadline itself is tough to pin down with certainty so it’s commonly referred to as the X-date. See: Trump on debt ceiling: GOP should force government default if Democrats won’t make ‘massive’ spending cuts “If you’re going to take something hostage, take the overall budget hostage, not the debt ceiling.” “They’ve taken the wrong hostage here,” said Kelly. would not actually default on its debts in such a situation.įor Kelly, the underlying problem is that the debt ceiling is being used by politicians to demand concessions or, alternatively, “we will blow up the financial world.” “I just don’t like this game of chicken because they keep on pushing closer and closer to a point where one miscalculation, or one piece of foolishness, could end up putting you in a very serious situation,” said JPMorgan’s Kelly, adding that he anticipates the U.S.
Unpacking the damage the doomsday machine could unleash is tricky because it has never been set off. Experts say the government might not actually default on its debts, but they also worry about the immediate negative economic impact and the long-term consequences for America’s economic strength. If you’re going to take something hostage, take the overall budget hostage, not the debt ceiling.’ ” - David Kelly, JPMorganīut what would actually happen if the debt ceiling were to be breached? It’s not clear exactly when or how it might happen. President Joe Biden had for months insisted that Congress send him a “clean” debt-limit increase and present its arguments for curtailed federal spending as part of the annual budgeting process. Members of the Republican and Democratic parties have been battling over including spending cuts as a condition for raising the borrowing limit, putting the Treasury Department in the position of possibly having to prioritize which payments it continues to make if a deal isn’t done in time. government could potentially run out of cash if Congress fails to lift the limit.
could hit its $31.4 trillion debt ceiling as soon as June 1, which would mean the U.S. Treasury Secretary Janet Yellen has warned the U.S. Congress has raised the debt limit dozens of times since then, but in recent years the maneuver has become fraught due to the deep political divide in Washington and across the country. Treasury the ability to issue bonds without congressional approval, but only if the total debt of the federal government stayed under a specified ceiling. The contraption itself was built by federal lawmakers during World War I, granting the U.S. Also see: ‘This is an especially inopportune time to have a political debate over the debt limit,’ warns economist Mark Zandi
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