A default by the U.S. government on its debt would result in long-term harm to the economy and create chaos in global financial markets, economists said.
The potential for another white-knuckle flirtation with default by the U.S. government via a debt-ceiling showdown is helping to raise “policy uncertainty,” analysts noted Wednesday.
Worries about a potential default by China property giant Evergrande triggered a sharp stock-market selloff on Monday. Those concerns have faded, with investors less worried about potential spillovers that could threaten the Chinese or global financial system.Stocks were up sharply Wednesday, maintaining gains after the Federal Reserve signaled it would soon begin to taper its asset purchases. The S&P 500 SPX, +0.95% was up 0.9% , while the Dow Jones Industrial Average DJIA, +1.
Renaissance Macro Research sees Republicans in Congress holding the stronger cards, which may allow them to force the issue, deGraaf said, noting that the index hasn’t yet jumped into the top decile , which is typically a bullish signal when it comes to forward returns for the S&P 500 index. The Democratic-controlled House late Tuesday approved legislation that would keep the government funded, suspend the federal debt limit and provide disaster and refugee aid, setting up a showdown with Senate Republicans who oppose the package.
Democrats have refused to attach a raise in the debt ceiling to that spending plan, which they intend to push through the Senate using a process known as reconciliation, which requires a simple majority. Top Democrats have insisted that lifting the debt limit must be a bipartisan undertaking. The Tell: Washington is ‘playing a dangerous game with the debt limit,’ and ‘Americans would pay for default for generations, says Moody’s Zandi
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