New York (CNN) Time is running out for leaders in Washington to avoid an unprecedented default on US debt. The federal government’s top consumer watchdog is warning of dire consequences for American families.
“It’s a huge concern. Every family should be concerned,” Rohit Chopra, director of CNN’s Bureau of Consumer Financial Protection, said in an interview Thursday.
If Congress fails to address the debt ceiling, the federal government could run out of money as soon as June 1, according to Treasury Secretary Janet Yellen. The nonpartisan Congressional Budget Office said Friday that there is a “significant risk” that the federal government will no longer be able to pay all of its obligations during the first two weeks of June.
Chopra said defaults would drive up borrowing costs — including credit cards, auto loans and mortgage rates — because US debt acts as a critical benchmark for various forms of credit. US Treasuries have always been seen as a risk-free asset, which keeps their prices very low.
“If global investors don’t think this is completely safe, we will all end up paying for it,” Chopra said.
Asked to respond to former President Donald Trump dismissing the default as possibly just a “bad week or day” by CNN’s Caitlan Collins, Chopra declined to comment directly on the political candidates. But in his response, Chopra has made it clear that he has quite the opposite point of view.
“A lot of things that we assume are part of our financial fabric are going to be torn apart,” Chopra told CNN.
He added that the CFPB, the brainchild of Democratic Massachusetts Sen. Elizabeth Warren created under the 2010 Dodd-Frank financial reform law, is “looking very seriously” at the impact of default on families.
You will panic
Some economists have warned of mass layoffs if the government falters. The White House has estimated that more than 8 million jobs will be eliminated if there is a prolonged default. Moody’s Analytics estimates that states including Florida, Ohio, Pennsylvania and Texas would each lose hundreds of thousands of jobs if there was a prolonged breach of the borrowing limit.
“With our knowledge and oversight of the banking system, we know that everyone is very concerned. American companies, Main Street, all of this can be affected,” Chopra said. “The effects are very severe, often for those who can’t weather those economic storms.”
JPMorgan CEO Jamie Dimon echoed those concerns, pointing to the risks of chaos in the markets.
“The closer you get to it, the more you panic,” Dimon told Bloomberg on Thursday. “The markets will become volatile, the stock market will probably go down, and the treasury markets will have their own problems… It’s not good.”
There is no clear path
Treasury Secretary Janet Yellen has placed calls to CEOs and business leaders to discuss the consequences of brinksmanship around the debt ceiling, a person familiar with the matter told CNN earlier this week.
The debt ceiling will very likely be in focus next week when Yellen is scheduled to meet top bank executives in Washington for a trade union meeting.
President Joe Biden commented briefly on the debt ceiling talks upon arriving at Joint Base Andrews on Saturday, saying the talks were “moving forward” but that it was “hard to speculate.”
“We will know more in the next few days,” he said.
“I think they’re moving in leaps and bounds, it’s hard to tell. We’re not at the crisis point yet, but there is a real discussion…but we’re not there yet,” Biden said.
Deputy Treasury Secretary Wally Adeyou said on CNN’s “State of the Union” Sunday that Biden does not believe that implementing the Fourteenth Amendment “will solve all of our problems.”
“The only thing that can solve our problems now is for Congress to raise the debt limit, by the way, 78 times,” Adeyou said.
Although there is no clear path yet to avoid a default, observers remain cautiously optimistic that Congress will eventually reach an agreement.
Neil Bradley, chief policy officer at the US Chamber of Commerce, is encouraged that talks are under way and hopeful that a bipartisan agreement can be reached soon.
“We never expected a deal this week, but we wanted to see real, ongoing discussions and that’s what happens,” Bradley told CNN.
However, as the June 1 deadline approaches, the risk of a real crisis is growing.
Moody’s Analytics on Wednesday increased the probability of a debt ceiling breach to 10%, up from 5% previously.
“What once seemed unimaginable now looks like a real threat,” Mark Zandi, chief economist at Moody’s Analytics, wrote in a report.
A breach is not as serious as a default, which will only happen if the Treasury Department fails to pay the debt on time. On the other hand, a breach may occur if the federal government fails to make a payment to any creditor on time, whether that be a Social Security beneficiary or an electric bill at a government building.
Financial markets are starting to price in the small – but growing – chance of a catastrophic default.
The implied probability of a US government default over the next 12 months has roughly doubled since late March to 4.3%, according to modeling done by research provider MSCI with CNN that is based on the cost of insuring US debt in the market for credit default swaps. .
CNN’s Ramisha Marouf and Betsy Cline contributed to this report.
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