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We found ourselves in the midst of another US debt ceiling debate.
A recurrent event that has significant implications for the global economy, including the financial markets.
Let's unpack this complex issue🧵
RT's appreciated!🙏
#economy #crypto #Bitcoin #stocks
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A recurrent event that has significant implications for the global economy, including the financial markets.
Let's unpack this complex issue🧵
RT's appreciated!🙏
#economy #crypto #Bitcoin #stocks
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The US debt ceiling is a legislative limit on the amount of national debt that can be incurred by the US #Treasury.
It's a cap on how much money the federal government may borrow to pay off the debt it has already borrowed.
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It's a cap on how much money the federal government may borrow to pay off the debt it has already borrowed.
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Interestingly, the debt ceiling does not directly limit government deficits.
While it can restrain the Treasury from paying for expenditures after the limit has been reached, these are expenditures that have already been approved and appropriated.
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While it can restrain the Treasury from paying for expenditures after the limit has been reached, these are expenditures that have already been approved and appropriated.
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The 14th Amendment of the US Constitution states that "the validity of the public debt of the United States...shall not be questioned."
This implies that it might be unconstitutional for the US to default on its debt🤔
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This implies that it might be unconstitutional for the US to default on its debt🤔
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The current debt ceiling applies to nearly all federal debt.
It's been raised several times in the past to avoid a default.
Notably, in 2011, the delay in raising the debt ceiling nearly led to a default on public debt.
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It's been raised several times in the past to avoid a default.
Notably, in 2011, the delay in raising the debt ceiling nearly led to a default on public debt.
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If the US were to default on its debt, the impact would be far-reaching.
It could cause a rise in interest rates, a drop in stocks, and a slowing of economic growth.
It would trigger a #recession we haven't seen before.
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It could cause a rise in interest rates, a drop in stocks, and a slowing of economic growth.
It would trigger a #recession we haven't seen before.
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It's a scenario nobody wants to see, but it's crucial to understand the potential outcomes.
I'll elaborate more, on how would the default impact:
- Interest rates
- Global liquidity
- Currencies and inflation
- Foreign holders of US debt
- and more
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I'll elaborate more, on how would the default impact:
- Interest rates
- Global liquidity
- Currencies and inflation
- Foreign holders of US debt
- and more
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1. Rise in Global Interest Rates
US Treasury bonds are considered the safest investments in the world.
A default could lead to higher interest rates as investors reassess the risk of holding US debt.
This could also affect other countries, pushing up global interest rates.
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US Treasury bonds are considered the safest investments in the world.
A default could lead to higher interest rates as investors reassess the risk of holding US debt.
This could also affect other countries, pushing up global interest rates.
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2. Reduction in Global Liquidity
U.S. Treasury bonds often serve as collateral in financial transactions.
A default could lower the value of these bonds, reducing global #liquidity and potentially triggering a #financialcrisis.
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U.S. Treasury bonds often serve as collateral in financial transactions.
A default could lower the value of these bonds, reducing global #liquidity and potentially triggering a #financialcrisis.
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3. Recession
The financial turmoil and loss of confidence resulting from a US default could trigger a severe #economic downturn or recession.
This could occur both domestically and in economies closely tied to the US, potentially even globally.
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The financial turmoil and loss of confidence resulting from a US default could trigger a severe #economic downturn or recession.
This could occur both domestically and in economies closely tied to the US, potentially even globally.
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4. Currency Devaluation & Inflation
A default could lead to a loss of confidence in the US $, causing its value to drop & leading to rising inflation in the US.
The upheaval could also affect global currencies given the $'s status as the world's primary reserve currency.
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A default could lead to a loss of confidence in the US $, causing its value to drop & leading to rising inflation in the US.
The upheaval could also affect global currencies given the $'s status as the world's primary reserve currency.
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5. Impact on Foreign Holders of U.S. Debt
Countries like #China and #Japan hold large amounts of US debt.
A default could decrease the value of their foreign exchange reserves, potentially destabilizing their economies.
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Countries like #China and #Japan hold large amounts of US debt.
A default could decrease the value of their foreign exchange reserves, potentially destabilizing their economies.
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6. Political Repercussions
A US default could lead to a loss of American economic and political influence globally.
It could also trigger a reevaluation of the global financial system, possibly leading to a diminished role for the US dollar.
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A US default could lead to a loss of American economic and political influence globally.
It could also trigger a reevaluation of the global financial system, possibly leading to a diminished role for the US dollar.
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7. Financial markets
The stock market is particularly sensitive to a potential default.
This is a concern echoed by the #WhiteHouse, warning of a crash of over 45% if the US defaults on its debt.
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The stock market is particularly sensitive to a potential default.
This is a concern echoed by the #WhiteHouse, warning of a crash of over 45% if the US defaults on its debt.
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The #crypto market's response, however, may be less straightforward.
Some view #cryptocurrencies as a "safe haven" asset during times of economic uncertainty.
This means that a default might actually increase investor interest in the crypto market.
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Some view #cryptocurrencies as a "safe haven" asset during times of economic uncertainty.
This means that a default might actually increase investor interest in the crypto market.
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However, President Biden's recent statement indicates he won't agree to a debt deal that protects crypto traders.
The exact implications of this statement are currently unclear, and more information is needed to fully understand its impact on the crypto market.
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The exact implications of this statement are currently unclear, and more information is needed to fully understand its impact on the crypto market.
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These are potential outcomes based on economic theory and the interconnectedness of global financial systems.
The exact sequence of events and their severity would depend on a multitude of factors.
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The exact sequence of events and their severity would depend on a multitude of factors.
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These factors include the length and extent of the default, the reaction of global financial markets, and the policy responses of governments and central banks around the world.
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The situation surrounding the US debt ceiling is rapidly evolving and the information contained in this thread may change.
Stay tuned for more updates on this significant economic issue.
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Stay tuned for more updates on this significant economic issue.
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That's it. I hope you have a better understanding on this topic after reading my thread.
If you are a new user reading my content, follows are appreciated.
Also, do not forget to like & RT the first tweet🙌
If you are a new user reading my content, follows are appreciated.
Also, do not forget to like & RT the first tweet🙌
https://twitter.com/GonzoXBT/status/1660982217730936833?s=20
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