Goldman Sachs

Goldman Sachs expects US default in June current year

  • 20/04/2023

Debt ceiling dispute pushes U.S. credit default swaps to 12-year peak


The cost of insuring the sovereign debt of the United States rose on Thursday to its highest level since 2011 due to market fears that the government may reach the national debt ceiling earlier than expected.

US five-year credit default swap spreads widened to 49 basis points, data from S&P Global Market Intelligence showed. This is more than double the level at which they were in January this year.

The White House has accused Republicans in the House of Representatives of “holding the American economy hostage” with its proposal to tie the debt ceiling hike to budget cuts, which has intensified divisions between President Joe Biden and lawmakers as the deadline approaches.

“MAGA House Republicans are holding the American economy hostage to strike at the programs Americans rely on every day to make ends meet,” White House press secretary Karine Jean-Pierre said Thursday, using an acronym for the former president’s slogan. Donald Trump “Make America Great Again”

House Speaker Kevin McCarthy on Wednesday unveiled a plan that would cut $130 billion in discretionary spending and raise the US debt ceiling by $1.5 trillion.

He called for the repeal of last year’s climate and health bill, known as the Inflation Reduction Act, and the repeal of Biden’s legally troubled plan to ease student debt.

“Every Republican in the House of Representatives who votes for this bill is voting to cut education, veterans’ health care, cancer research, food on wheels, food safety, and law enforcement,” Jean-Pierre added. “Taking healthcare away from millions of Americans and jeopardizing food assistance for hundreds of thousands of older people. Raise electricity bills and raise taxes for hard-working families.”

The Republicans refused to increase the US national debt without serious concessions, and Biden called this demand non-negotiable. Even if McCarthy’s proposal were approved by the House of Representatives, the Democratic-controlled Senate would refuse to consider it.

Analysts at Goldman Sachs Group Inc. on Tuesday they warned that due to lower tax revenues, the US default date could be closer to June rather than August, as some economists predicted.

Treasury Secretary Janet Yellen set a deadline earlier this year for “extraordinary measures” to temporarily avoid a default.

McCarthy has promised more conservative members of the House’s narrow Republican majority that he will demand massive spending cuts as part of any deal to raise the debt ceiling.

Almost at the same time that McCarthy detailed his proposal on the floor of the House of Representatives, Biden gave a speech at a union plant in Maryland denouncing Republicans’ attempts to make debt cap increases contingent on federal spending negotiations. According to him, these two issues should be separated.