Is the City of London Out To Bankrupt the United States Government?
May 24, 2023, 2022 (EIRNS)—What is London’s gameplan around the U.S. budget crisis? Are we simply witnessing the usual circus and theatrics (on both the Republican and Democratic sides) as part of the negotiating process? Or is London planning to take this a step further this time around and actually induce a real default by the U.S. on its Treasuries—for either a shorter or longer period of time?
Deliberately induced bankruptcies have been London’s stock-in-trade recently—against Russia, Argentina, Bangladesh. And of course Europe has had the struts knocked out from under it with the London-designed sanctions and energy policy. Is it the U.S.’s turn in the barrel, on a different scale than has happened until now, to make sure Washington doesn’t break ranks with London?
A major article in The Economist gives pause for thought. Headlined “What Happens if America Defaults on Its Debt? An Unimaginable Eventuality Becomes All Too Imaginable,” the article weaves a series of detailed scenarios.
“Congress could drive the country into its first sovereign default in modern history. A collapse in stock markets, a surge in unemployment, panic throughout the global economy—all are within the realm of possibility. The path to a default is clear.”
The article continues:
“Default could come in two flavors: a short crunch or a longer crisis. Although the consequences of both would be baleful, the latter would be much worse. Either way, the Fed would have a crucial role to play in containing the fallout; this crucial role would, however, be one of damage-limitation.”
Every market around the world would be hit, they note, since Treasuries are used as collateral for nearly everything. One option for the Fed would be to default on Treasuries coming due by forcing creditors to roll them over with longer-term notes, but that would create a two-tiered market and a mess.
“Yet it is easy to imagine this kind of jury-rigged system eventually breaking down. At a minimum, investors would demand higher interest to compensate for the risk, leading to a tightening of credit conditions throughout global markets....
“However this works out, America would already be in the throes of extreme fiscal austerity. The government would be unable to borrow more money, meaning it would have to cut spending by the gap between current tax revenues and expenditures—an overnight reduction of roughly 25%, according to analysts at the Brookings Institution, a think-tank....
“The Council of Economic Advisers, an agency in the White House, estimates that in the first few months of a breach, the stock market would fall by 45%. Moody’s reckons it would fall by about 20%, and that unemployment would shoot up by five percentage points, which would mean somewhere in the region of 8 million Americans losing their jobs.... An avalanche of credit downgrades would add to these troubles.”
According to press accounts, Jamie Dimon, CEO of JPMorgan Chase, the largest bank in the U.S., recently convened a “war room” discussion on the possibility of a default, and warned of market panic.