Former Treasury Secretary Lawrence H. Summers believes the debt limit terror is a very serious threat in the backdrop of the current political scenario.
“Debt limit terror is a much more serious risk in the context of rising interest rates, Treasury market illiquidity and increased foreign holdings of U.S. securities,” Summers said.
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Summers cited a Politico article that said Biden administration officials are increasingly pessimistic about averting an economically risky showdown over the debt limit.
The report cited a frustrated White House official saying, “We’d love to do the debt limit. That doesn’t magically create the votes to get the debt limit done.”
Debt Limit: Analysts expect the Treasury Department to run out of options to keep borrowing money by June, although the department could take emergency steps to extend the date a bit further, the report indicated.
If the debt limit is not lifted, it is likely to spike fears of the first debt default in the history of the United States, which would potentially hammer markets around the world, push interest rates even higher and send the economy into recession.
Senior officials anticipate little possibility of attracting any Republican votes for a bipartisan debt limit hike during the short session, as per the report. The Democrats have officially retained the Senate, while the Republicans have gained control over the House of Representatives.
Price Action: So far, the market has not reacted negatively to the possibility of the debt limit not being raised. The SPDR S&P 500 ETF Trust SPY ended Wednesday’s session 0.78% lower, while the Vanguard Total Bond Market Index Fund ETF BND gained 0.57%.
On Biden: Summers earlier praised Joe Biden in the wake of the mid-term elections, saying his administration has "a historic opportunity, even in the midst of current challenges, if it can skillfully implement infrastructure, technology and green economy measures" that have been approved.
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