dept floor

Dept floor is the main discussion between to parties in US

Next week, House Republicans plan to vote on a bill that would raise the US debt ceiling while imposing significant spending cuts. Conservative lawmakers are pushing for further changes, but President Joe Biden and other Democratic leaders are refusing to make concessions. The US could default on its payment obligations as early as June if Congress does not approve a debt increase. US Treasury Secretary Janet Yellen will update the deadline after calculating tax revenues at the end of this week.

The growing risk of a confrontation between Republicans and Democrats over this issue could result in a serious problem. Such a scenario would lead to a significant drop in stock and bond yields and an increase in the value of the dollar.

Goldman Sachs analyst Dominic Wilson believes that the 2011 debt ceiling crisis is the best template to follow. Failure to reach a consensus on time will mean that interest-free government payments are impossible.

During the 2011 debt ceiling crisis, the following market reactions were observed between July 26 and August 19:

Performance in numbers

-The S&P 500 and emerging market MSCI stocks both dropped 16%

-The VIX volatility index surged by 22.8 points

-The 10-year Treasury yield declined by 89 basis points, while the 2-year yield fell 20 basis points

-The dollar index increased by 1.3% -Deutsche Bank’s Equilibrium Basket of Emerging Market Currencies declined by approximately 2.7%

-High-yielding currencies are the most vulnerable to depreciation in this situation

-The price of Brent oil for delivery in 12 months and three-month contracts for copper fell by roughly 10%.

July 26, 2011, was chosen as the reference point as it was close to the peak of the S&P 500 before the debt ceiling was reached and before a significant drop in both indicators on July 27. In reality, the debt ceiling was reached on August 2, and the US rating was downgraded on August 5.

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