This is not the first time that the US finds itself on the precipice of a fiscal cliff. In 2011, Congress went down to the wire, threatening the livelihoods of civil servants and global financial stability before agreeing on raising the debt ceiling.
We have seen borrowing costs rising already through higher US Treasury yields, potentially exacerbating what were already fragile banking conditions in the US following the Fed’s aggressive rate hikes. “A full default will certainly lead to a recession, with unemployment to rise sharply while business and consumer confidence levels will plunge. Government payments to its employees and its suppliers will be halted, creating massive ripple effects throughout the economy. A default-induced recession will also be difficult to reverse, with government unable to deploy any counter-cyclical policies to support the economy,” Miller said.