A US debt default would be “potentially catastrophic,” according to Jamie Dimon, CEO of JPMorgan Chase, on Thursday. President Joe Biden and Republican leaders have until June 1, 2023, to increase the $31 trillion debt ceiling.
The banker issued the warning on May 11 after lawmakers failed to increase the nation’s debt ceiling. The American banking system is the cornerstone of the whole global economic system, Dimon emphasized.
The country’s $31 trillion borrowing cap must be increased by June 1. If the limit is not raised, the government might not have enough money to cover its expenses, according to Treasury Secretary Janet Yellen.
Although Dimon does not anticipate the nation’s first-ever debt default, time is running out to reach a solution.
“As you get closer, you’ll start to panic. Markets will become more volatile, possibly the stock market will decline, and Treasury markets will experience their own issues, said Dimon, whose bank earlier this month purchased the assets of the bankrupt First Republic.
President Joe Biden met with lawmakers on Wednesday, including Speaker of the House Kevin McCarthy, to discuss lifting the debt ceiling, but no agreement could be reached because Republicans wanted spending cuts and other conditions.
Although Dimon does not anticipate the nation’s first-ever debt default, time is running out to reach a solution.
“As you get closer, you’ll start to panic. Markets will become more volatile, possibly the stock market will decline, and Treasury markets will experience their own issues, said Dimon, whose bank earlier this month purchased the assets of the bankrupt First Republic.
President Joe Biden met with lawmakers on Wednesday, including Speaker of the House Kevin McCarthy, to discuss lifting the debt ceiling, but no agreement could be reached because Republicans wanted spending cuts and other conditions.
In 2011, a fight in Congress over the debt ceiling led to the US losing its Triple-A credit rating from S&P.
A default would be detrimental to contracts, collateral, clearing houses, and international clients, according to Dimon, who also noted that time-consuming “war room” discussions are currently taking place.
Currently, discussions occur once every week.
“But my best prediction is that it will be every day at some point, perhaps May 21, 2023. Then it will happen three times per day. Following that, there will be more discussions with clients about what they must do to survive. It is really too bad. This should never take place.
Short-term Treasury bill yields have increased as speculators dump the debt in anticipation of a potential default.
It’s incredible that some T-bills are currently trading at 3% and 5% right next to each other. It’s not good,” remarked Dimon. People need to understand that the American banking system is the backbone of the world economy.
On Thursday, the one-month Treasury yield was 5.55%, while the three-month Treasury yield was 5.2%.
“Our debt to GDP [ratio] was 65% or 70% the previous time we were downgraded. It is now 105. We need to exercise extreme caution because our deficits are now two to three times what they were back then, Dimon said. A “default is not an option,” Biden reportedly warned Congressional leaders at their discussion on Wednesday. “America is not a slack country. He answered, “We pay our bills.”
