Bank of America CEO Brian Moynihan has warned that the U.S. could default on its debt if Congress fails to raise the debt ceiling. Speaking to CNN, Moynihan said that corporate America has to prepare for the possibility of a debt default despite hoping it won’t happen.
Last month, the U.S. Treasury Department issued a warning that the nation was reaching its current debt ceiling of $31.4 trillion, and now an alarm has been sounded. If the debt ceiling is not raised, the federal government could run out of money to pay all its bills by June.
This has prompted International Monetary Fund (IMF) Managing Director Kristalina Georgieva to warn of a spike in borrowing costs that could squeeze American consumers and cause significant global economic harm.
The U.S. Treasury has been using extraordinary measures to pay its bills since Jan. 19 and these measures are expected to last until sometime this summer. Talks to over the government's budget are making little progress, with Republicans and Democrats sparring over possible spending cuts if the US is to raise the debt ceiling.
Moynihan acknowledged that the US has had to take out more debt recently due to extraordinary occurrences such as the COVID-19 pandemic, but he dismissed the ideas put forth by other analysts that the US should eliminate the debt ceiling totally.
Bank of America anticipates a mild recession due to persisting inflation and high interest rates. Bank of America has cautioned that the 450 basis-point rate increase made by central bankers, in an effort to reduce high prices, might negatively impact corporate earnings and cause the economy to experience a downturn.
It is possible that President Joe Biden will address the subject in his State of the Union address on Tuesday. Janet Yellen, the US Treasury Secretary, has cautioned Congress that the country may not be able to meet its monetary responsibilities by June if the debt limit is not raised prior to that time. Yellen insisted that “every responsible member of Congress” should agree to raise the debt ceiling to avoid the “catastrophe” of a default. It remains to be seen if the President’s address will provide a resolution to the looming debt limit crisis.
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