If people suspect there’s a good chance of a default, then they may stow their cash under a mattress rather than keep it in the bank
But should people really get concerned about a potential default in early June?Time is an enemy. Mr. Biden huddles with the top four bicameral Congressional leaders on Tuesday. But it would be a challenge to muscle through an agreement by the deadline – even if they forged an agreement at the White House conclave.The other issue: the math. Why? Because it’sabout the math on Capitol Hill. Congress has dealt with debt ceiling deadlines before.
"I think they manipulate the dates. I don’t believe it’s June 1. I think it’s more like sometime in August," said Sen. John Kennedy, R-La. "This June 1 date – I think that’s a political statement. Not a statement based on fact." Senate Armed Services Committee Chairman Jack Reed, D-R.I., posed those very questions to Director of National Intelligence Avril Haines at a recent hearing.
Also, the Treasury just auctioned one-month bills which will ripen in early June. The yield on those bills skyrocketed to the highest level in history. The reason? Investors wanted a higher on their bills since there’s a chance government could default. Any contortions in what investors call the "Treasury yield curve" are usually foreboding economic signs.
"It will prioritize interest and principal payments so that it's not strictly defaulting on securities, on Treasury securities, which would roil financial markets," said Wendy Edelberg, the former chief economist at the and now a senior fellow in economic studies at the Brookings Institution. "Then there are millions of people who are owed federal benefits, such as Social Security payments. We are talking about millions of people potentially not getting paid on a timely basis.
WASHINGTON, DC - JANUARY 02: U.S. President Biden returns to the White House on January 02, 2023, in Washington, DC. President Biden is returning from his holiday vacation in St. Croix."We don't want Treasury picking and choosing which payments should be made on a timely basis and which shouldn't. We don't want Treasury choosing which agencies should get funded on some particular day, or which program beneficiaries should get their checks on some given day.
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