JPMorgan CEO Jamie Dimon warns US debt default is potentially catastrophic
US faces a risk of default by early June if Congress fails to raise borrowing limit
He warned a default would be 'potentially catastrophic' for financial markets
JPMorgan Chase CEO Jamie Dimon has said the bank is convening weekly meetings to discuss the implications of a potential US default, which he called 'potentially catastrophic'.
That bank's so-called 'war room' will start daily meetings on May 21, then ramp up to three times a day if the standoff over the debt limit drags on, Dimon told Bloomberg TV in an interview on Thursday.
'We've got to be very careful about getting close' to a default, which could cause a financial panic if the debt ceiling is not raised by the end of the month, he added.
'The closer you get to it, you will have panic,' said Dimon. 'Markets will get volatile, maybe the stock market will go down, the Treasury markets will have their own problems.'
'It's very unfortunate, it's time-consuming, hopefully it won't happen, but it affects contracts, collateral, clearing houses, clients,' added Dimon.
JPMorgan Chase CEO Jamie Dimon has said the bank is convening weekly meetings to discuss the implications of a potential US default, which he called 'potentially catastrophic'
The United States faces a 'significant risk' of defaulting on payment obligations within the first two weeks of June without a debt ceiling increase, the Congressional Budget Office said on Friday.
Likewise, Treasury Secretary Janet Yellen has estimated a potential default around June 1, underscoring the urgency of resolving a bitter standoff between Republicans and Democrats over raising the nation's $31.4 trillion statutory borrowing cap.
While Democrats have called for a unencumbered increase to the debt limit, Republicans are demanding sharp spending cuts for the coming fiscal year before they agree to raise the limit on the Treasury's borrowing ability.
Negotiations between White House officials and the staffs of congressional Republicans and Democrats are continuing, but a Friday debt limit meeting between President Joe Biden and top lawmakers was postponed until next week.
Republican House Speaker Kevin McCarthy said there had not yet been 'enough progress for the leaders to get back together.' Staff-level talks are expected to continue through the weekend.
The looming default deadline has already sent jitters through financial markets. On Friday, the Dow Jones Industrial Average closed slightly down on the session, after losing 414 points, or 1.23 percent, over the course of the week.
On Friday, the Dow Jones Industrial Average closed slightly down on the session, after losing 414 points, or 1.23 percent, over the course of the week
It's not just Wall Street that's concerned. Sentiment among US consumers is tumbling, according to a preliminary survey by the University of Michigan on Friday.
That's a worry, because strong spending by consumers has been one of pillars keeping an already slowing economy from sliding into a recession with sharp job losses.
Joanne Hsu, director of the Surveys of Consumers, pointed to the looming possibility of a government default as a factor weighing on sentiment.
'If policymakers fail to resolve the debt ceiling crisis, these dismal views over the economy will exacerbate the dire economic consequences of default,' she said in a statement.
The CBO's report on Friday held out hope for more negotiating time, saying the Treasury can 'probably' finance government operations through at least the end of July if available cash and extraordinary borrowing measures can last through June 15, when quarterly estimated tax payments are due.
On June 30, the Treasury will be able to access $145 billion in new extraordinary borrowing measures by suspending investments in two government employee retirement and health funds.
Negotiations between White House officials and the staffs of congressional Republicans and Democrats are continuing, but a Friday debt limit meeting between President Joe Biden and top lawmakers was postponed until next week
'The extent to which the government will be able to fund the government's ongoing operations will remain uncertain throughout May, even if the Treasury ultimately runs out of funds in early June,' the CBO said in a statement.
'That uncertainty exists because the timing and amount of revenue collections and outlays over the intervening weeks could differ from CBO's projections,' the CBO said.
The Treasury reported a cash balance of $154.8 billion as of Wednesday and the CBO said it had about $41 billion of borrowing capacity under extraordinary measures as of April 30.
The CBO said that in mid-May the Treasury will make outlays of around $50 billion to cover interest due on 10-year notes and on longer-dated bonds, with $10 billion to $16 billion in outlays at the end of May.
On June 1 the government will likely pay out around $25 billion in Social Security payments and pay and benefits to military personnel, civil service employees.
Source: Daily Mail
