Goldman Sachs warns of a ‘real risk’ that America may default on its debt

“Congress appears unlikely to address the debt limit before the last minute, and there appears to be a material risk that Congress will fail to act by the October 18 deadline,” Goldman Sachs economists wrote in a note.

Wall Street added that “a fall in borrowing authority appears to be a real risk”, although the outage “may be brief”.

It is important to note that Goldman Sachs’ warning was published before the news that Senate Minority Leader Mitch McConnell is weighing Two ideas to present to Democrats on addressing the debt limit. A Republican source told CNN’s Manu Raju that one option would be a short-term increase in the debt ceiling.
Treasury Secretary Janet Yellen emphasized Wednesday that if the debt ceiling is not raised, the federal government will run out of cash She faces unusual actions by October 18. After that date, the Treasury will have very little cash to pay state bills.

“While this is not our primary issue, we also believe there is a real risk that Congress will miss the deadline,” Goldman Sachs economists wrote in the report.

Goldman Sachs isn’t putting a lot of equity into any unilateral actions the Treasury could take to address the debt limit, Including minting a 1 trillion dollar coin Or ignore the limit by citing the Fourteenth Amendment.

“It is impossible to completely rule out these or other steps, but we are skeptical that such moves will take effect this year,” the economists said in the report.

The most likely option for addressing the debt crisis, according to Goldman Sachs, is to increase the standalone debt limit through settlement – It is the process that Democratic leaders have argued against.

Goldman Sachs said one big flaw here is that it would likely force Democrats to set a new dollar amount for the debt limit, perhaps near $31 trillion, rather than just hanging it.

“Of course, these shortcomings are the reasons Republicans would want to ask Democrats to use them. However, this appears to be the most likely option at the moment,” the economists said.

Goldman Sachs stressed that any slowdown in borrowing power would likely be short-lived because “the response of the public and financial markets will likely force a quick political solution.”

If Congress misses the deadline, Goldman Sachs said the Treasury will likely continue to pay principal and interest on Treasuries, but Stop the other payments Americans depend on every day.

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