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Peter Davis

An writer at FOMOdrive

  • Jun 19, 2023
  • 2 min read

Nobel Laureate in Economics Says US Default Is Real

JPMorgan has advised traders to be mindful of the US government debt ceiling.

Paul Krugman, a Nobel Prize winner, believes that the US could potentially default on its debt.

The end is near for the US Treasury's capacity to employ extraordinary measures to avert default.

The White House characterized a potential US default as a boon for Russia and China.

Paul Krugman, a Nobel Prize winner in Economics, has urged the US to raise its debt ceiling. He warned that "the risk of the federal government being unable to fund its operations is now very real."

Krugman argued that the only reason a default could occur is if Republicans in the House of Representatives are attempting to leverage the debt ceiling to gain political advantages, which would not have been possible through the usual legislative process.

Last week, Janet Yellen, the US Treasury Secretary, cautioned that the lack of a debt ceiling could lead to a "constitutional crisis" with repercussions for financial markets and interest rates.

She warned that the government's ability to pay bills without raising the public debt limit will expire at the start of June. For months, we have been taking emergency measures, but our capacity to do so is diminishing, she said.

On Tuesday, White House press secretary Karine Jean-Pierre warned that a potential U.S. default on government debt would be a boon to Russia and China, and would create worldwide unease concerning the dollar.

She believes that China and Russia will take advantage of the default to show the disorder in the US and our incapability to act as a democracy. This will also cause doubt in the world about the worth of the dollar, organizations, and the US's leading role, which will result in unsteadiness in the markets.

Warren Buffett has warned that, although the US dollar is not in danger of losing its status as the world's reserve currency, the US government's aggressive spending could be devastating.

Currency traders and buyers of the dollar should be aware of the US government debt ceiling, as JPMorgan anticipates a discussion of raising the debt limit. This could potentially lead to a weakening of the dollar against other reserve assets such as the franc, yen, euro, and gold.

The dollar may increase in value compared to currencies with higher risk betas, such as the Canadian, Australian, and New Zealand dollars, simultaneously.

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