Potential US debt ceiling crisis and consequences of a US default
📌 For the past few weeks, the United States has been facing a delicate situation regarding its debt ceiling. As negotiations to raise the U.S. government’s $31.4 trillion debt ceiling reach a critical stage, financial institutions on Wall Street and asset managers are preparing for the potential consequences of a default.
📌 If the ceiling is not raised in a timely manner, the US risks finding itself in a situation where it cannot meet its financial obligations, including repayment of existing debt. There is just over a week to go before 1 June, when the Treasury Department has warned that the federal government might not be able to pay all its debts.
📌 Although unlikely, a US default would have immediate consequences for households, and we can expect massive volatility in equity, debt, and other markets. In addition, we could expect a downgrade of the United States, which would affect short-term implications for the U.S. debt, putting pressure on the stock market and driving investors towards safe-haven assets such as gold and the yen.
Source: Reuters, Capital.