Consequences of a US government default: Warning of a dramatic collapse in the stock market and a deep recession

Consequences of a US government default: Warning of a dramatic collapse in the stock market and a deep recession

According to a report from www.businessinsider.de, the debt ceiling in the USA will soon be reached. If this is not revised, the US government is at risk of defaulting on its payments. The White House warned that the stock market could collapse by 45 percent if the US defaults on its debt. It would also lead to a severe recession, similar to the 2008 financial crisis. The debt ceiling deadline is fast approaching in early June as the US Treasury has exhausted all of its extraordinary measures.

According to an analysis of the situation by financial experts, the impending insolvency of the USA is leading to considerable uncertainty on the financial markets. Should a default occur, it could cause the stock market to plunge by 45 percent, which could have serious implications for the global economy. In particular, the sharply rising interest rates on credit cards and personal loans would significantly limit the ability of consumers and companies to finance themselves. Furthermore, a default could result in nearly 8 million job losses and the government would lose its fiscal tools that could be used to support the economy.

Current forecasts from market indicators suggest that the likelihood of a U.S. debt default is low as the VIX, the stock market's fear indicator, is trading at low levels and the broader stock market is trading near one-year highs. According to JPMorgan, credit default swaps currently only have a 4 percent chance of a default on U.S. debt. Nevertheless, the situation remains extremely uncertain and investors are sensitive to it.

Overall, the threat of US insolvency poses a serious risk to the global economy and financial markets. It is essential that the U.S. government reach an agreement quickly to avoid a potentially devastating default.