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US debt ceiling: ‘Doomsday scenarios’ as ‘X-date’ disaster looms


Experts are becoming increasingly frantic amid fears that America could default for the first time ever — sending major shockwaves around the world.

The country is running out of money and tense negotiations are currently underway in Congress over the US debt ceiling, which currently stands at $31.4 trillion ($A46.8 trillion).

Democrats want it raised immediately, while Republicans are pushing for a series of conditions, such as spending cuts, before agreeing to lift the self-imposed borrowing ceiling.

If a deal is not reached soon to raise the debt ceiling, America could default as early as June 1 — in just 16 days — according to Treasury Secretary Janet Yellen, who said it would cause “an economic catastrophe” both in the US in just 16 days. and around the world.

Now attention turns to a series of seven “doomsday scenarios” that could unfold if no solution is found on X-date.

According to expert predictions reported by The Washington Postare seven “doomsday scenarios” that could unfold if America missed the X-date and default.

It would be a lethal combination After That reports the chief economist of Moody’s Analytics, Mark Zandi.

First, Moody’s Analytics predicts stock prices could fall by about a fifth, wiping out $10 trillion ($A15 trillion) in household wealth and decimating millions of retirement accounts.

The stock market turmoil would be one of the first major victims of bankruptcy, falling about 20 percent from major indices in 2011, when the US was last at risk of bankruptcy.

Once the stock market began to crumble, shock waves would spread through the wider economy, which could send the U.S. economy into an abrupt recession due to declining wealth and a subsequent fall in spending, as well as a jump in interest rates and a fall on the real estate market.

Subsequently, the country’s 4.2 million government employees would be left in limbo, with the option of working without pay.

Social Security and Medicare payments would also be disrupted if the government lost its ability to pay its bills.

Yet another outcome could be a skyrocketing cost of borrowing for the government, which has traditionally been able to borrow money cheaply because of the perceived security of the US economy.

In fact, Treasury borrowing costs have already increased “significantly for securities expiring in early June,” Ms. Yellen revealed in a letter she sent to congressional leaders Monday.

It is worrying that the chaos will not be confined to the US, but will instead spread across the planet, especially as many countries buy US sovereign debt, which is generally considered so safe.

And finally, the US dollar would plummet, along with confidence in the entire US political system, which could result in a significant reduction in the percentage of currency exchanges currently conducted in dollars.

‘Serious damage’

Meanwhile, Treasury Secretary Janet Yellen again warned of bankruptcy in early June in a note to House Speaker Kevin McCarthy.

“As additional information becomes available, I am writing to note that we still estimate that the Treasury will likely no longer be able to meet all of the government’s obligations if Congress has not acted to remove the debt limit in early June. raise or suspend, and possibly as early as June 1,” she wrote.

“We have learned from previous debt limit deadlocks that waiting until the last minute to suspend or raise the debt limit can seriously damage business and consumer confidence, increase short-term borrowing costs for taxpayers, and negatively impact on the creditworthiness of the United States. States.

“In fact, we have already seen Treasury borrowing costs rise significantly for securities maturing in early June.

“If Congress fails to raise the debt limit, it would cause serious distress to American families, damage our global leadership position and raise questions about our ability to defend our national security interests.”

US President Joe Biden, Kevin McCarthy and other congressional leaders will meet again on Tuesday at US time to discuss budget negotiations in an effort to avoid a default.

$88 billion to stop a global disaster

In a statement late last week, the US Treasury Department revealed it had just $88 billion ($A131 billion) in extraordinary measures to pay the bills and keep the country afloat as the debt crisis continues.

It was a big drop from the $110 ($A164) it had just a week earlier, and represents just over a quarter of the $US333 billion ($A497 billion) in approved measures still available to keep the government below the debt limit.

And despite Mr Biden touting this week’s meeting as a sign of progress, Mr McCarthy told reporters on Monday that they were “a long way from coming to a conclusion”.

Joanna Swanson

Joanna Swanson is Europe correspondent at the Thomson Reuters Foundation based in Brussels covering politics, culture, business, climate change, society, economies and inclusive tech. With specific focus in breaking news, she has covered some of the world's most significant stories.