A US Debt Default Will Have Unquantifiable Adverse Consequences

A US Debt Default Will Have Unquantifiable Adverse Consequences

The Securities and Exchange Commission (SEC) Chairman, Gary Gensler, has warned that the US Treasury defaulting on its debt obligations "would have very significant, hard-to-predict, and likely lasting effects on investors, issuers, and markets alike." Gensler said, "We’ve already seen an effect on the pricing and liquidity of short-dated Treasury bills and will continue to monitor for any additional tremors."

SEC Chairman Warns that US Debt Default Would Shock Markets

The US Securities and Exchange Commission (SEC) chairman, Gary Gensler, has warned that the US debt default will have immeasurable adverse consequences on capital markets, as discussions of the US defaulting on its debt obligations have taken Congress by storm.

"I’d like to say a few words regarding the ongoing discussions in Washington around the debt ceiling," the SEC chairman said in his observations before the Wednesday International Swaps and Derivatives Association annual meeting. Gensler warned:

"If the US Treasury as an issuer were actually to default, it would have very significant, hard-to-predict, and likely lasting effects on investors, issuers, and markets alike."

"In a word, it would make the Cyclone Roller Coaster at the 1933 Chicago World’s Fair look like a kiddie ride," he said. 

SEC has No Direct Role in Discussions

The SEC chairman also clarified, "While we at the SEC have no direct role in those discussions, the outcome is directly consequential to each part of our mission: protecting investors, facilitating capital formation, and maintaining fair, orderly, and efficient markets."

He added:

"We’ve already seen an effect on the pricing and liquidity of short-dated Treasury bills and will continue to monitor for any additional tremors."

US Treasury Secretary Janet Yellen revealed last week that the Treasury Department may not be able to pay all of the government’s bills as early as June 1" if Congress does not raise or suspend the debt limit before that time." She also warned of severe consequences in the event of the US defaulting on its debt obligations.

What is your take on SEC Chairman Gary Gensler’s warning on the impact of a US default on capital markets? Please post your comments.