![]() “A default would threaten the gains that we’ve worked so hard to make over the past few years in our pandemic recovery. The broadest economic impact of a US debt default would be a recession that would encompass the global economy, including sharp job losses. “Such financial market disruptions would very likely be coupled with declines in the price of equities, a loss of consumer and business confidence, and a contraction in access to private credit markets.”Īmericans’ investments would take a major hit as stocks lose as much as a third of their value, wiping out around $12 trillion in household wealth, according to Moody’s Analytics. “Worsening expectations regarding a possible default would make significant disruptions in financial markets increasingly probable,” Wendy Edelberg and Louise Sheiner of the Brookings Institution wrote in an analysis. ![]() That leaves Americans having to pay more to borrow - on top of the Federal Reserve’s own rate hikes. Borrowing costs for credit card rates and mortgage rates would spike, since US debt serves as a critical benchmark for various forms of debt. Yields on Treasury bills for early June, when the Treasury Department could exhaust its cash and extraordinary measures, have soared this month. Except, some market tensions have already manifested. Investors care about stability and predictability, so a credit rating downgrade would send a chill down Wall Street’s spine. The federal government maintains a perfect credit rating from Fitch and Moody’s, but that could change as the stalemate drags on. In that instance, S&P Global Ratings credit rating agency downgraded the government from AAA to AA+ credit rating. The United States was in a similar situation in 2011 when it got close to defaulting. If the United States defaults on its debt, it would undermine faith in the federal government’s ability to pay all its bills on time, affecting the government’s credit rating and unleashing massive turbulence in financial markets. These states will be hit the hardest if the US debt ceiling standoff isn't resolved US authorities took extraordinary measures to shore up confidence in the financial system after the collapse of Silicon Valley Bank, introducing a new backstop for banks that Federal Reserve officials said was big enough to protect the entire nation's deposits. The US Treasury building in Washington, DC, US, on Monday, March 13, 2023.
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