JPMorgan Chase released a report on January 28 saying that the debt ceiling fight could be the most important issue facing the U.S. economy and U.S. national debt in 2023. This is because since the last U.S. subprime crisis, the U.S. financial system has become more and more dependent on debt. This time, the U.S. has more debt, higher interest rates, and a more divided Congress. The market may have seriously underestimated the risk of this US debt limit crisis.
In the immediate aftermath, Janet Yellen of the U.S. Treasury Department said on Jan. 29 that the U.S. debt default made her “nervous” and warned, “If Congress does not raise the debt ceiling this summer, the United States will face a catastrophic debt crisis that will lead to a spiraling recession. If there is a default, we will face a financial crisis.
U.S. financial website Zero Hedge analyzed in a follow-up report on Jan. 28 that Japan, the largest U.S. debtor, is not ruling out the possibility of reducing its U.S. debt position to 10% of the current total as a deterrent to the dollar. This suggests that Japan will continue to liquidate US Treasuries as long as the Federal Reserve does not stop raising interest rates. Japan, the biggest black swan of U.S. debt, is contributing to the historic U.S. debt collapse and the imminent first U.S. debt default.
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