2023-05-25 16:50:08
Investment bank JPMorgan, one of Wall Street’s biggest players, now rates the probability of the United States defaulting at 25%, reports Markets Insider.
Wall StreetPhoto: Vichaya Kiatying-Angsulee / Panthermedia / Profimedia Images
The warning in a report on Wednesday comes following Janet Yellen, the US Treasury secretary, warned once more that Congress must reach an agreement on the US debt ceiling by early June for Washington to avoid a disaster .
“We still think the most likely outcome is a deal signed into law before the X date, although we see the likelihood of exceeding that date without a cap increase at around 25% and rising,” Michael Feroli, chief economist at JPMorgan for the US.
It also notes that the US Treasury might avoid a technical “default” by making payments on its debt before other obligations, but that this would most likely lead to a downgrade of the US credit rating from triple A.
But at the same time, the priority non-payment of interest on the US debt would lead to “much worse results”, according to him.
Negotiations on avoiding US default are entering the last hundred meters
Incidentally, the Fitch rating agency announced on Wednesday that decided to place “under supervision” AAA rating of the United States, the highest possible, due to the risk of default.
This decision “reflects the political tensions that prevent resolution of the issue, such as raising or suspending the debt ceiling, while the deadline is fast approaching,” the agency explained.
Congress must raise the debt ceiling quickly to avoid a default, which the US Treasury says might happen in less than two weeks.
Like JPMorgan, Fitch “expects” a timely resolution of the situation, but its experts believe that “risks have increased that the debt ceiling will not be raised or suspended in time and that the government will begin to default on payments “.
Unlike most developed countries, the US has a limit on the level of public debt it can reach. That cap is currently $31 trillion. Since the US government has been spending more than it takes in for decades, this cap must be constantly raised, as it requires congressional approval.
American politicians are flexing their muscles with the presidential election in their sights
In years when the White House, the executive arm of the US state, and Congress, the federal legislature in Washington, are under different political control, negotiations to raise the debt ceiling are often tough and marked by political battles, so the current situation is not new .
But US congressmen usually reach an agreement before the situation becomes too dangerous. Janet Yellen has consistently warned since the beginning of this year that the US risks default if lawmakers in Washington do not reach an agreement.
President Joe Biden met once more in the middle of this month with Republican representatives in Congress to try to reach an agreement, but the White House announced last Sunday that negotiations took a ‘step back’.
Neither Republicans nor Biden’s Democrats seem willing to compromise much in order not to appear weak in front of their voters, given that next year’s presidential election is just over a year away, which will be held simultaneously with elections for Congress.
Incidentally, former President Donald Trump, who is hoping for a rematch once morest Biden in November 2024, he asked them earlier in the month Republican congressmen to push the US into default if the Biden administration does not agree to “massive budget cuts.”
Immediately following Trump’s comments, the IMF came out to sound the alarm, warning that such a situation would have particularly serious consequences for the entire world economy, not just the American one.
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