Congress is once again debating raising the debt ceiling, the amount of money the US government can borrow to pay its bills on time. And that means the American private sector must be ready for the worst.
The CEO of Bank of America, the second largest US bank, told CNN who expects legislators to solve their problems, because the market and the economy love stability. However, the country’s debt default remains a possibility that cannot be ignored.
“We have to be prepared for that, not just in this country, but in other countries around the world,” Bank of America CEO Brian Moynihan told CNN on Monday. “You hope it doesn’t happen, but hope is not a strategy – so you prepare for it.”
US President Joe Biden may touch on the subject in this Tuesday’s State of the Union address (7). US Treasury Secretary Janet Yellen has already warned Congress that the country could default on its financial obligations as early as June if the debt ceiling is not raised before then.
Yellen later said there could be a “global financial crisis” if there is no debt limit agreement. The Treasury Department is now taking “extraordinary measures” to keep paying bills on time.
The latest drama over the debt ceiling has led to some calls for the government to get rid of it altogether. The argument is that political disputes should not prevent the US from honoring its financial commitments.
Moynihan is not a fan of that idea. he said to CNN that “there should be a discussion about how to ensure that we live within our means as a country” when asked whether or not the US should eliminate the debt ceiling.
“I would be careful trying to restructure the US Constitution,” he said. “I think we should leave it alone and make sure it works properly.”
But he conceded the government had to spend much more on various stimulus programs since 2020 due to the Covid-19 crisis, saying the US had to take on “a lot of debt in the last two years to get through the pandemic”.
The economy has recovered strongly from the depths of the brief Covid recession. So much so that inflation is now arguably the biggest problem facing the country, as well as the Federal Reserve.
The Fed aggressively raised rates last year to try to contain inflation. The rate hikes have started to work, but the US job market remains incredibly strong.
“The unemployment rate has remained very low. Extremely low,” Moynihan said. “That is one of the challenges for the Fed.”
With that in mind, Moynihan said, Bank of America is still predicting a “mild recession” at some point in the future — but the start date keeps getting pushed back. He argues that higher fees could hurt corporate profits, but the good news is that most people are still working, earning good wages and spending.
Moynihan also doesn’t seem overly concerned that any geopolitical tension between the US and China stemming from the recent alleged spy balloon incident will have a lasting impact on the global economy.
According to him, given China’s importance in the global supply chain, it is in everyone’s interest that no economic tensions escalate.
“It’s interesting to look at the relationship between these two countries,” said Moynihan. “But the best thing in the world is free trade.”
Source: CNN Brasil
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