Minneapolis FED Official Says US Debt Default Would Be a Catastrophe

Joshua Ramos
Source: Gallup News

Earlier this year, the United States hit an all-time high in national debt. A development that triggered numerous possibilities and ongoing debate between Congress on whether or not to raise the debt ceiling. Now, a day after Bank of America CEO Brian Moynihan issues similar sentiments, a Minneapolis FED official says the US debt default would be a catastrophe.

Currently, there are two sides of the political aisle; those against allowing an increase to the debt limit, and those in favor. Subsequently, the debate is not a new one in the history of American economics, but the reality of a debt default would truly have detrimental consequences.

The Implications of a US Debt Default

A Minneapolis FED official has recently stated that a US debt default would be catastrophic, and they certainly aren’t wrong. The government would be pushed into default if the ceiling is not raised, and the government can no longer borrow money at the rate they need to operate.

When the national debt officially surpassed the ceiling, US Treasury Secretary Janet Yellen stated that the country had the ability to operate until June. Then, a decision on the debt ceiling would have to have been reached, or operations couldn’t continue on their current track.

NYSE
Source – Wallpaper Flare

The reality of the matter is that US debt default would truly have treacherous consequences. One economist notes that even the threat of a US debt default is enough to have a noticeable impact on the economic state of the country. Stating that in 2021 “the mere prospect of a potential default led to an unprecedented downgrade of the nation’s credit rating,” and affected many American individuals.

A debt default would lead to the near collapse of the US dollar, with it likely being replaced as global trade’s “Unit of account.” This affects American companies, who are safer from various exchange rate risks due to the dollar’s dominance. Conversely, these kinds of subsequent detriments speak to why America keeping from defaulting on its debt is almost a necessity.