After repeated warnings from the Treasury Secretary and a dwindling treasury account, the US debt ceiling is still not raised and the US could face a default as early as June 1st. A lot of the credit is underwritten using treasuries as the collateral. Government money market funds like SGUXX basically use treasury bills as part of the repurchase agreement. If the US defaults, it’s going to send the global financial system into a tailspin. We don’t know what the long-term impact will be if the US defaults but it will certainly erode the trust for the US dollar and the US government, which is already in a downward trend.
The US government has always run the country with a deficit. The theory is that if we can grow our GDP and keep the debt-to-GDP ratio constant under control, then running on deficit is not an issue. But our government is set up so that the executive branch spends the money to run the country while the legislative branch approves the budget and debt issuance to keep the executive branch accountable. The two branches have to collaborate with each other to make it work. But apparently it’s not the case right now. Republicans don’t want to raise taxes and democrats don’t want to cut spending. That has always been the case. With republicans controlling the congress and democrats controlling the senate and White House, they haven’t been able to reach a compromise to end this political drama. It is their job to reach a deal but they don’t seem to be in a rush even though the deadline is quickly approaching. Both parties blame each other for the deadlock while trying to score points in this negotiation for their 2024 election. They are flying closer and closer to the sun and I hope they do the right thing ASAP to not cause a completely unnecessary disaster.
