Analysts are predicting stocks will crash big if the U.S defaults on its debt soon.
A UBS analysis says the S&P 500 could fall by the very least 20%.
“But it’s hard to predict just how bad things could get because the U.S. has never defaulted on its debt.
Analysts believe the selloff could match or surpass a precipitous drop in September 2008, when the House of Representatives rejected a $700 billion rescue package as the U.S. was on the precipice of the global financial crisis,” says NPR.
“The Dow Jones Industrial Average dropped about 778 points that day, which was then the largest single-day drop by points in the index’s history.
A default would also send the U.S bond markets sharply lower.
A default would also weaken the U.S. dollar, which is widely seen as the world’s most important currency given the critical role it plays in the global economy.”
How will this affect the average person?
A sharp drop in stocks would hit retirement or other investment funds across the board.
At the same time, bond markets determine all kinds of borrowing costs, which would go sharply higher if there were a U.S. default.
This would be more bad news for anyone hoping to buy a house or a car at a time when borrowing costs have already risen after the Federal Reserve hiked interest rates aggressively to fight high inflation.
Mortgage rates, for example, would climb even higher, as would interest rates on credit cards.
Simply put, majority of the nation would be experiencing a big financial setback.
The U.S Could Default on Its Debt in June
Treasury Secretary Janet Yellen has previously said the “X-date,” or the date when the US can no longer pay its bills and risks a default, is June 1.
But the actual deadline could be a week later than June 1, Alec Phillips, Goldman Sachs’ chief political economist, told Bloomberg on Friday.
“Our guess right now is that the real deadline is probably more like June 8th, 9th, that’s when they’re at sort of greatest risk,” Phillips said.
Business Insider says Phillips did not explain the X-date calculation in the interview. But these forecasts could vary because these calculations depend on the amount of taxes and other revenue the US government collects versus how much it spends.
While that may buy the US more time to negotiate a deal over raising the debt ceiling, it’s still better to do it sooner or later, Phillips added.
“The reality is that Congress has to do this at some point very soon, and they should just go ahead and do it,” Phillips said. “So waiting for the last minute isn’t necessarily the right move, even though we think that maybe they could go a little bit longer.”
The Democrats and Republicans have remained locked in an impasse over raising the US’ $31.4 trillion debt ceiling — which means the US could run out of money as early as June 1, Treasury Secretary Janet Yellen has warned.
“I indicated in my last letter to Congress that we expect to be unable to pay all of our bills in early June and possibly as soon as June 1.
And I will continue to update Congress, but I certainly haven’t changed my assessment.
So I think that’s a hard deadline,” she told NBC.
Latest Economy and Banking News
JPMorgan (NYSE:JPM) is freezing customer bank accounts in the latest bank scandal.
Republican attorneys general from 19 states say the bank is “persistently” discriminating against its own clients and closing bank accounts without warning.
The law enforcement officials, led by Kentucky Attorney General Daniel Cameron, sent a letter to JPMorgan CEO Jamie Dimon stating that the banking giant’s practices go against the company’s own policies on equality, per Business Insider.
The letter, which has now been published by the Wall Street Journal, states that JPMorgan has repeatedly discriminated against customers based on their religious or political beliefs.
“It is clear that JPMorgan Chase & Co. (Chase) has persistently discriminated against certain customers due to their religious or political affiliation.
This discrimination is unacceptable.
Chase must stop such behavior and align its business practices with the anti-discrimination policies that Chase proclaims.”
The attorneys general cite the sudden account closure of a religious liberty organization as an example of the bank’s discriminatory practices.
In May 2022, Chase abruptly closed the National Committee for Religious Freedom’s (NCRF) checking account.
NCRF is a ‘nonpartisan, faith-based nonprofit organization dedicated to defending the right of everyone in America to live one’s faith freely.’
When NCRF inquired about the reason Chase closed the account, multiple bank employees stated that the decision came from the ‘corporate office.’ Specifically, NCRF’s executive director “was informed that a note in the file read that Chase employees were not permitted to provide any further clarifying information to the customer.’’
You can read the full story here.
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