Then-New York Fed President Bill Dudley in 2018.VICTORIA JONES/AFP via Getty Images
Bond and stock markets would crash in a debt crisis, even if the US avoids immediate default.
That’s according to former New York Fed President Bill Dudley, writing in a Bloomberg op-ed.
“I have one message for those observing or involved in the standoff over raising the US federal debt limit: Be afraid, be very afraid.”
Failure to lift the debt ceiling would devastate stocks and bonds, even if the US government prioritized payments to stave off an immediate default, Bill Dudley wrote in a Bloomberg column.
The warning comes after Treasury Secretary Janet Yellen said the government could run out of money and trigger an economic crisis as soon as June 1.
“I have one message for those observing or involved in the standoff over raising the US federal debt limit: Be afraid, be very afraid,” said Dudley, who previously served as president of the New York Federal Reserve. “At this point in the financial and economic cycle, the consequences of failing to reach a deal would be particularly dire.”
This is as months-long gridlock continues to impair action to avert the crisis, given that Republicans and Democrats are becoming more entrenched in their positions, Dudley wrote. Since January, the US is relying on “extraordinary measures” by the Treasury to keep servicing debt.
While Republican House Speaker Kevin McCarthy was able to pass a House bill to lift the debt ceiling, Dudley doesn’t much sign of progress toward an agreement as it targets key Democratic initiatives, such as student loan forgiveness, while adding requirements for programs such as Medicaid.
Meanwhile, the White House has maintained that it will only agree to a “clean” deal that lifts the debt ceiling without any spending cuts or other conditions.
If lawmakers can’t agree to raise the borrowing limit, President Joe Biden likely wouldn’t pursue “gimmicks,” such as minting a $1 trillion coin, Dudley said. Instead, it’s more likely that the Treasury would prioritize payments on government debt, while federal workers would have to…
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