Wharton's Jeremy Siegel Sees No Threat Of Debt Default; 'What Is Most Likely Is...'

The debt ceiling impasse has been front and center, and the Biden administration and analysts warning of a potential economic catastrophe if a resolution is not reached.

Wharton Professor Jeremy Siegel in his weekly commentary for Wisdomtree offered his take on the crisis-in-waiting.

What Happened: "My belief is that we will not get a default," Siegel said. Nor does the economist think June 1 is a "really hard" deadline.

Treasury Secretary Janet Yellen has been suggesting that June 1 could be the earliest day by which the government will likely default if the debt ceiling is not raised or suspended. She clarified that the timing is based on currently available data on federal receipts, outlays and debt.

"The actual date Treasury exhausts extraordinary measures could be a number of days or weeks later than these estimates," she said in a letter to Congress on Monday.

The Congressional Budget Office released a report on Friday in which the government forecaster said if Treasury's cash and extraordinary measures are adequate to finance the government until June 15, potential quarterly tax receipts and extraordinary measures will likely keep the government from defaulting at least until the end of July.

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Most Probable Outcome: Siegel said Democrats are pressured to meet the Republicans in some way. "I think if they meet them halfway, that is a good position for the Democrats," the economist said.

If the Republicans get half of what they are clamoring for, it can be regarded as a victory, Siegel said. The House Republicans want spending cuts to be part of the bill seeking to raise the debt ceiling, he added.

"What is most likely is another ‘kick the can' down the road measure to extend the debt issue until right before the presidential election," Siegel said.

The economist is apparently referring to what the government did in January when the debt ceiling fixed in Dec. 2021 was breached. The Treasury announced a debt issuance suspension period and started using “extraordinary measures” to borrow additional funds without breaching the debt ceiling.

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