For several months, Wall Street has largely disregarded the prospect of a government default on its debt. However, the situation has changed.
With the deadline to raise the nation’s debt ceiling of $31.4 trillion rapidly approaching, and no resolution in sight, traders and executives are becoming apprehensive that President Joe Biden and Republicans will not resolve the deadlock until it is too late.
This has triggered heightened concerns about the potential threat that could unsettle markets and push the world’s largest economy towards recession, Politico reported.
The reaction of Wall Street investors to the possibility of a government default is critical as they are responsible for financing the country’s massive debt by purchasing the securities that the Treasury sells to fund the government.
If they withdraw from the market, interest rates may surge, causing significant strain on the government, businesses, and consumers.
This is why their degree of confidence can act as the most powerful force to compel Washington’s partisans to reach an agreement.
For much of this year, a significant number of Wall Street insiders believed that the lessons learned from the 2011 crisis, which saw voters incensed over the drop in their retirement savings as stocks plummeted, would prevent a repeat of such an occurrence. However, this conviction is beginning to diminish.
Written by staff