Since hitting the $31.4 trillion national debt limit in January, Treasury Secretary Janet Yellen has been using "extraordinary measures" to keep the government functioning. However, Yellen has repeatedly cautioned that she cannot sustain these measures indefinitely. She has stated that the X-date, which is the day when the government will no longer have sufficient funds to operate, could arrive as early as June 1 and result in an economic catastrophe.
The pressure on politicians to reach a debt deal has intensified in light of this impending crisis. Prominent economists, such as Harvard professor Jason Furman, have expressed concern over the unnecessary economic burden caused by the debt ceiling brinkmanship in Washington. Wall Street leaders, including Morgan Stanley's chief investment officer Mike Wilson, have also sounded the alarm, stating that the debt ceiling drama is a lose-lose situation for markets.
The CEOs and Wall Street leaders, including Albert Bourla (CEO of Pfizer), Jeff Gennette (CEO of Macy's), James Gorman (CEO of Morgan Stanley), David Solomon (CEO of Goldman Sachs), and Henry R. Kravis (co-founder of KKR), joined forces to criticize politicians for their failure to reach a debt ceiling agreement. They highlighted the 2011 debt ceiling crisis, which led to a 17% decline in the stock market just two days before the X-date. According to data from Moody's presented in the letter, the crisis resulted in a 0.7 percentage point increase in unemployment and a $180 billion economic contraction.
The CEOs and Wall Street leaders emphasized that these severe impacts occurred even without an actual default. They warned that if the U.S. were to reach the X-date, it could trigger further bank failures following the recent instability in the industry. Additionally, it could threaten the government's ability to meet other financial obligations, including payments to Social Security or Medicare recipients.
The group concluded the letter by stating that such a scenario cannot be allowed to happen, urging for a quick resolution to avert this potentially devastating crisis. In response, House Speaker Kevin McCarthy mentioned slow progress towards a resolution with the Biden administration, expressing confidence that a debt default would be avoided.
President Biden also delivered a hopeful speech, expressing confidence that an agreement would be reached on the budget, emphasizing that there is no alternative.
It remains to be seen how the debt ceiling issue will be resolved, but the collective concern expressed by CEOs and Wall Street leaders underscores the urgency and potential consequences of the situation.
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