A failure to reach a deal to raise the debt ceiling before next weeks hard deadline will trigger a market crash, Wall Streets Dr. Doom has warned.
Roubini Macro Associates CEO Nouriel Roubininicknamed Dr. Doom on Wall Street after predicting the 2008 financial crisistold Bloomberg TV at the Qatar Economic Forum on Wednesday that negotiators taking the deal to the wire was creating risks for the stability of financial markets.
They may get to the last hour before theres an agreement, he said. Or its possible they dont reach an agreement. If that doesnt happen, then the market is going to crash. That may force an agreement in the [following] few days.
Roubini, who is also Professor Emeritus of Economics and International Business at NYU Stern, speculated that any default from America could undermine the greenbacks dominance as a reserve currency. Calls for a move away from the U.S. dollar have been growing this year, with countries from Brazil to China seeking an acceleration of de-dollarization.
There is a lot of talk these days about de-dollarization, he said on Wednesday. If the U.S. were to have a real problem with debt, a credit event and so on, thats going to increase the likelihood that people are going to diversify, over time, away from dollar assets.
Investors across the globe are closely monitoring ongoing bipartisan talks on raising the debt ceiling, as the U.S. edges ever closer to an unprecedented default on its debts.
The hard deadline approaches
Treasury Secretary Janet Yellen said over the weekend that June 1 was the hard deadline for raising the federal debt limit.
Negotiators are yet to reach an agreement, with Biden labeling concessions offered by GOP lawmakers unacceptable on Sunday and talks reaching another impasse on Tuesday.
However, Republican House Speaker Kevin McCarthy struck a note of optimism following Tuesdays negotiations, saying he believed a deal could be made before the nation runs out of cash to pay its bills.
Were not there yet, he told reporters in Washington. But he added: We could still finish this by June 1.
With the deadline looming, however, Louisiana Rep. Garret Graves told journalists on Capitol Hill Tuesday evening that a significant gap remained between White House and Republican negotiators.
Roubini isnt alone in predicting a catastrophic outcome if the deadline to increase the debt ceilingknown as the X-datepasses without a resolution in place.
In January, Moodys Analytics said a debt default could deal a $12 trillion blow to the U.S. economy, sparking a downturn comparable to the one brought on by the global financial crisis.
Last week, a group of more than 140 CEOs and high-profile Wall Street figures warned stocks would crash if lawmakers could not raise the debt ceiling.
We write to emphasize the potentially disastrous consequences of a failure by the federal government to meet its obligations, they wrote in an open letter to President Biden and Congress.
Meanwhile, former Treasury Secretary Larry Summers labeled the gridlock in negotiations a foolish exercise, arguing that the standoff could slash $6 trillion from the stock market.
