The debt ceiling will “worsen” America’s economy the longer talks rage on, an expert warned. After hitting the $31.4 trillion debt limit in January, the Biden administration and House Republicans have been at loggerheads as the GOP attempt to secure spending cuts.
However, an expert said “surprisingly little” will happen to the economy and financial markets if they go past the “drop dead day”.
Ajay Rajadhyaksha, global chair of research at Barclays, noted after the US’ debt limit battles in 2011 and 2013, the Treasury and Federal Reserve said they would prioritise bond payments.
However, Ajay also noted that this would mean “a sharp, sudden and brutal cuts to all other government spending” as bondholders continue to be paid.
And in a more dire warning, the expert said that despite a “slow build” and the likelihood of “Treasury bonds actually rallying”, the only way to “settle existing bills” is to raise the debt ceiling.
“The economic and market consequences will worsen the longer the impasse continues after the drop-dead date”, Ajay told the Financial Times.
“Eventually, markets may even start worrying about the unthinkable — maybe the US truly isn’t going to make good on its existing non-debt commitments?
“On the first day after, there is unlikely to be a ‘big bang’, either in markets or the economy.
“But if a financial crash doesn’t happen despite months of warnings it might make matters worse by emboldening the holdouts in Congress to dig in further — for weeks if not months.
“That’s when the real damage will start to occur.”
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And Sen. Rick Scott, R-Florida, is “tired of caving” on the debt limit and has lashed out at Senate Republican Leader Mitch McConnell.
The Senate leader removed Scott from the Commerce Committee, a move that conservatives viewed as fallout from the November leadership race, which Scott lost 37-10.
The senator then said “I’m not going to back down”, and accused McConnell of “caving” back in 2021 when he struck a deal with Senate Majority Leader Charles Schumer, D-New York, to create a one-time procedural exception to allow debt-limit legislation to advance on the Senate floor without having to face a filibuster.
“You saw [in 2021] he came out and said in July that we would not participate in raising the debt ceiling and then … he organized 11 people to say we’ll allow the Democrats to do it on our own”, Scott said.
“We didn’t follow conference rules. I’m tired of caving.”
