A default on Treasurys “could have dramatically negative impacts on a wide range of financial assets,” said David Kelly, chief global strategist at JPMorgan Funds. Will reaching the debt ceiling lead to a default? We answered some burning questions.
Treasury Secretary Janet Yellen told top U.S. lawmakers last week that the federal government is expected to hit its ceiling for borrowing on Thursday, with her warning coming as Democrats and Republicans look set for a market-shaking showdown over lifting the limit.
Ever since then, Washington has produced battles over raising the limit on federal borrowing to pay for spending already approved by Congress, with Republican and Democratic presidents having to cajole a reluctant Congress, as MarketWatch has previously reported. “While the United States has hit the debt limit before, it has never run out of resources and failed to meet its financial obligations.”
“This could have dramatically negative impacts on a wide range of financial assets including U.S. bonds, equities and the dollar DXY, +0.16%. Relative winners, in such an eventuality, could include real assets GLD, -0.65%, high-quality international equities and the government bonds of countries perceived to be more fiscally responsible,” Kelly added.
Some analysts have been warning that the rocky process of electing a new House speaker doesn’t bode well for how the chamber will handle the debt ceiling, as McCarthy again can only absorb four defections given the slim GOP majority.White House press secretary Karine Jean-Pierre said the Biden administration wouldn’t negotiate over the debt ceiling and told reporters it should be raised “without conditions.
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