US Treasury Secretary Jack Lew says the US government will default on its loans on Oct. 17.
Leaders of some of the world™s largest banks said on Saturday that they don™t know exactly what would happen if the United States defaults on its debt – but they are sure it would be disastrous.
Congress is spending the weekend trying to figure out how to get around an impasse over raising the government™s $16.7 trillion borrowing limit and how to re-open the government, but as of Saturday afternoon it remained unclear how a deal would be struck.
œIn my opinion we will not default,” JPMorgan CEO Jamie Dimon said during a panel discussion at the annual meeting of the Institute of International Finance, a bank trade group, in Washington. œI think any responsible person I know including in government knows that. I think it would ripple across the global economy in ways you couldn™t possibly understand.”
The Treasury Department has warned that Congress must lift the debt ceiling by Oct. 17 when the US is slated to exhaust its borrowing authority.
Other leading bankers at the IIF event joined in warning about the consequences of Washington not reaching a deal.
œIt would be utterly catastrophic,” said Deutsche Bank Co-Chair Anshu Jain, stressing the importance of the US dollar in international finance. œThis would be a rapidly spreading fatal disease.”
Jain said suggestions that the consequences of a default would be œtiny” are false.
While Dimon expressed optimism Saturday that a deal will be reached, JPMorgan and other large financial institutions have begun taking precautions. For instance, JPMorgan told investors this week that its money market funds no longer own Treasury securities that mature or have scheduled coupon payments from Oct. 16 to Nov. 6.
JPMorgan manages $6 billion to $7 billion in Social Security, veteran™s benefits and other U.S. payments every week to clients who could be at risk due to a default, Dimon said.
If the borrowing limit is not increased, Dimon said he didn™t know when exactly the trouble would start, but that it would soon threaten money market funds, which are considered a safe place for investors of all sizes to park their money.
Dimon said the U.S. and global economies are improving and pleaded with lawmakers not to spark another global recession.
œPlease let™s not shoot ourselves in the foot,” Dimon said. œIt™s a risk that shouldn™t be taken.” POLITICO
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