As Washington teeters closer to a possible government shutdown at midnight Thursday, here’s why the status of the nation’s debt ceiling may ignite more worry in financial markets.
Sept. 30 marks the end of the federal government’s fiscal year, and the deadline for Congress to pass a funding measure. The debt ceiling, which is the amount of money lawmakers authorize the Treasury Department to borrow, must be suspended or raised by Oct. 18, according to Treasury Secretary Janet Yellen, or the U.S. likely will default on its debt.
It’s important to note that no one knows precisely when the U.S. Treasury will run out of money to pay its bills, including bondholders, let alone what would happen next. U.S. sovereign debt generally has been considered the safest and most liquid to own in the world, and all kinds of financial market products and processes have been pegged to the orderly functioning of the nearly $21 trillion Treasury market.
Still, after a couple of topsy-turvy years in which the previously unthinkable became real, some Washington and Wall Street professionals have been girding for a worst-case scenario.
“I see it as an exceedingly slim chance, although with all the theatrics, the possibility has been ramped up,” said Ben Koltun, director of research for D.C.-based Beacon Policy Advisors. “If it does happen, it turns a manufactured political crisis into an economic crisis. The full faith and credit of the U.S. would no longer be full.”
The stalemate on Capitol Hill right now is over a $3.5 trillion spending package.
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