If the debt crisis roiling Washington were eventually to send the United States crashing into recession, America’s economy would hardly sink alone
File - People linger in the Central Business District in Beijing, Wednesday, Oct. 26, 2022. If the debt crisis now roiling Washington were eventually to send the United States crashing into recession, the repercussions of a first-ever default on the federal debt would reverberate around the world and quickly. WASHINGTON — — If the debt crisis roiling Washington were eventually to send the United States crashing into recession, America's economy would hardly sink alone.
And if a government default were to last much longer — well into the summer — the consequences would be far more dire, Zandi and his colleagues The threat has emerged just as the world economy is contending with a panoply of threats — from surging inflation and interest rates to the ongoing repercussions of Russia's invasion of Ukraine to the tightening grip of authoritarian regimes. On top of all that, many countries have grown skeptical of America’s outsize role in global finance.
Given their perceived safety, the U.S. government’s debts — Treasury bills, bonds and notes — carry a risk weighting of zero in international bank regulations. Foreign governments and private investors hold nearly $7.6 trillion of the debt — roughly 31% of the Treasurys in financial markets. So reliable is America's currency that merchants in some unstable economies demand payment in dollars, instead of their own country’s currency. Consider Sri Lanka, battered by inflation and a dizzying drop in the local currency. Earlier this year, shippers refused to release 1,000 containers of urgently needed food unless they were paid in dollars. The shipments piled up at the docks in Colombo because the importers weren't able to obtain dollars to pay the suppliers.
If the United States were to pierce the debt limit without resolving the dispute and the Treasury defaulted on its payments, Zandi suggests that the dollar would once again rise, at least initially, “because of the uncertainty and the fear. Global investors just wouldn’t know where to go except to where they always go when there’s a crisis and that’s to the United States.’’
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