Over the past 12 months, the US stock market has grown by more than 30%, and government debts – from 108% to 126% of GDP. Large-scale support for the economy has led to the fact that the US Treasury has money left only until mid-October. If Congress does not allow to borrow over the limit, the government will suspend work (shutdown mode), and in case of aggravation of the situation will declare default.
In a negative scenario, the federal government will have to take unprecedented cost-cutting measures, which, according to Moody’s (NYSE:MCO), will lead to the loss of 6 million jobs, an increase in unemployment to 9% and a 30% drop in the stock market.
In 2020, institutional investors bought Bitcoin instead of gold to insure against inflation.
This time the situation is different – they get rid of risky assets in order to get into the cache. Hence the fall of most financial instruments, including cryptocurrencies.
At the moment, Republicans are blocking the passage of the budget project in order to achieve a number of concessions from Democrats. The deadline was set by Finance Minister Janet Yellen on October 18.
However, it should be borne in mind that for the United States, shutdowns and raising the debt ceiling are a common phenomenon. So, over the past four years, the government has stopped its work three times, and since 1977 – 20 times. Each time, Congress has managed to smooth the corners to get the economy running before the next debt level increase.
Until a compromise is found, markets will remain under pressure.