Wall Street Leaders Warn of ‘Unthinkable’ Fallout If US Defaults

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(Bloomberg) -- Some of Wall Street’s most experienced traders warned of “unthinkable” long-term implications from a US default and argued the debt limit may need to be permanently repealed.

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In a letter to Treasury Secretary Janet Yellen, current and former leaders of the Treasury Borrowing Advisory Committee said the costs of the current standoff extend beyond markets to the time that financial firms are having to spend preparing for a possible default.

“The short-term impacts of a protracted negotiation are costly; the long-term implications of a default are unthinkable,” wrote the 17-member group, which includes Goldman Sachs Group Inc. executives Beth Hammack and Ashok Varadhan and former JPMorgan Chase & Co. Chief Operating Officer Matt Zames. “The magnitude of adverse consequences from a prolonged negotiation, or a default, is unquantifiable.”

The group argued for the debt limit to be raised “with all due haste” and for a permanent fix to the issue. The letter was signed by chairs and vice chairs of the TBAC, an external committee that advises the Treasury Department on borrowing, since 1998.

“It is time to introduce an alternative method of enforcing fiscal responsibility, by either requiring the limits to be raised simultaneously with appropriations or by repealing the debt limit altogether,” they wrote.

Investors have been watching Washington closely, with President Joe Biden hosting House Speaker Kevin McCarthy and other congressional leaders at the White House on Tuesday in a bid to resolve the ongoing impasse over the debt ceiling and avoid a potentially catastrophic technical default.

“There is real risk to the US dollar,” Hammack, Goldman’s co-head of global financing who has chaired the advisory committee for around half a decade, said in a Bloomberg Television interview Tuesday.

Read more: Goldman’s Hammack sees ‘real risk’ to dollar from debt-cap brawl

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