Wednesday, October 16 08:47:47
Here's what Jamie Dimon, the chief executive of America's largest bank, JPMorgan Chase, said when asked about what would happen if Congress doesn't raise the debt ceiling: "You don't want to know," he said at a meeting of the Institute of International Finance over the weekend. "It would ripple through the world economy in a way that you couldn't possibly understand . . . the money markets are the most fickle markets in the world; they're like a rabbit."
U.S. Treasury securities are the bedrock of the global financial system. They are used as ultra-secure collateral for trillions of dollars' worth of transactions, and are used by banks, pension funds and all sorts of investors as a safe place to park cash. When the world was at its financially scariest point in 2008, short-term Treasury bills were considered the safest of safe assets -- to the degree that investors actually bought them at a negative interest rate (they were paying, say, $1,002 in exchange for a bill that would pay them $1,000 30 days later).
The truth is, we don't really know what would happen to the broader financial system if the United States seriously threatened to make its payments late or started failing to meet its obligations. It might not even follow the usual logic of debt defaults. Usually when a creditor looks like it might not make bond payments on time, its borrowing costs skyrocket, whether that creditor is Argentina or Enron. But because Treasuries are viewed as a safe haven, financial chaos could actually cause their yields to fall, which is what happened after Standard and Poor's downgraded America's credit rating in August 2011 according to a report in The Washington Post.