in modern history. A collapse in stockmarkets, a surge in unemployment, panic throughout the global economy—all are within the realm of possibility.is clear. America has until roughly June 1st to raise its debt limit—a politically determined ceiling on total gross federal borrowing, currently at $31.4trn—or it will run out of cash to cover all its obligations, from paying military salaries to sending cheques to pensioners and making interest payments on bonds.
Default could come in two flavours: a short crunch or a longer crisis. Although the consequences of both would be baleful, the latter would be much worse. Either way, the Fed would have a crucial role to play in containing the fallout; this crucial role would, however, be one of damage-limitation. Every market and economy around the world would feel the pain, regardless of the central bank’s actions.
To start with, the Fed would treat defaulted securities much as it treats normal securities, accepting them as collateral for central-bank loans and potentially even buying them outright. In effect, the Fed would replace impaired debt with good debt, working on the assumption that the government would make payment on the defaulted securities, just with some delay.
In the short-term scenario, Congress responds by raising the debt ceiling, allowing markets to recover. A default that lasts for a few days would be a black eye for America’s reputation and probably induce a recession. Yet with deft management, it would not be the stuff of nightmares.moment”, referring to the autumn of 2008 when Congress initially failed to pass the Troubled Asset Relief Program to bail out the banks, prompting global markets to crater.
Loans Loans Latest News, Loans Loans Headlines
Similar News:You can also read news stories similar to this one that we have collected from other news sources.
Source: Observer_Owl - 🏆 18. / 72 Read more »