WASHINGTON (Reuters) – Wall Street executives, who have advised the U.S. Treasury on debt management for the past 25 years, said on Monday they were “deeply concerned” about the deadlock in the debt ceiling as markets fear the U.S. will default. are there,” he warned.
18 current and former Chairs and Vice Chairs of the Treasury Borrowing Advisory Committee (TBAC) since 1998said in a letter To Treasury Secretary Janet Yellen, “A delay in interest or principal payments by the Treasury Department would be a seismic event, not only for financial markets, but for the real economy as well.
Advisors say the stalemate between Republicans and Democrats in Congress and the White House has already raised borrowing costs for taxpayers due to sluggish Treasury auctions and high yields on short-term Treasury bills, with ratings agencies said it had already released its analysis of a potential U.S. rating downgrade.
“There will be a direct impact on issuers whose credit relies on U.S. government support,” including mortgage companies Fannie Mae and Freddie Mac, municipal issuers Amtrak and Tennessee Valley authorities. “A downgrade or default of the U.S. government would have widespread ramifications throughout the real economy.”
They argued that the role of the Treasury market as the backbone of the entire financial system would be called into question, that there would be no benchmark pricing firm in the bond market, and that investors would exit the bond and equity markets. Stated.
The chairs, led by current TBAC chair Beth Hammack at Goldman Sachs (GS.N), said: “The effectiveness of US Treasuries as eligible collateral for margin has been called into question, and the interest rate derivatives, commodities and mortgage markets have been hit hard. It will have devastating consequences,” he wrote. His Deirdre Dunn Vice Chairman of Citigroup (CN).
Their letter was circulated after President Joe Biden met with Republican House Speaker Kevin McCarthy at the White House, though there were no signs of softening their position, but they agreed to continue negotiations.
Advisors said discussions about raising the debt ceiling were “reckless and irresponsible” after the bank’s turmoil began in March.
Prolonged negotiations would have short-term costs, but a default would be an “unthinkable” event, executives said. “The ramifications of prolonged negotiations and debt defaults are immeasurable and borne by both American taxpayers and the American economy,” they write.
Reported by David Lawder.Editing Sandra Muller
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