JPMorgan Chase is gearing up to prepare for the eventuality of the United States hitting its debt limit, according to Chief Executive Jamie Dimon.
“This is like the third time we’ve had to do this, it is a potentially catastrophic event,” said Dimon, cited by Reuters.
He voiced hope that US policymakers would manage to hammer out a solution to avoid an outcome that would impact the repurchase agreement (repo), money markets, client contracts, capital ratios and ratings agencies.
Headquarters of JPMorgan Chase finance company in New York, the USA.
© AP Photo / Mark Lennihan
As part of the money-lender’s scenario for the |US potentially defaulting on its debt, Dimon said the bank was scrutinising its client-contracts.
“You’ve got to check the contracts to try to predict it out ... If I remember correctly, the last time we got prepared for this, it cost us $100 million,” he said.
The American billionaire businessman deplored the fiscal brinkmanship that has marred US politics over the past decade. The US has never defaulted on its debt, yet Dimon recalled previous instances when bipartisan division over the debt ceiling had similarly come down to the wire in 2011 and 2017.
“Every single time this comes up, it gets fixed, but we should never even get this close. I just think this whole thing is mistaken and one day we should just have a bipartisan bill and get rid of the debt ceiling. It’s all politics,” added the Chairman of the Board and Chief Executive Officer of the largest bank in the US in terms of assets.
Debt Ceiling Battle
Congressional Democrats have been scrambling to raise the government’s $28.4-trillion borrowing cap as the US is on track to default on the national debt potentially between 15 October and 4 November, according to a forecast released on 24 September by the Bipartisan Policy Center (BPC).
Treasury Secretary Janet Yellen warned in a letter to lawmakers on Tuesday that the Treasury will likely exhaust extraordinary measures to service the nation’s debt by 18 October.
Signage is seen at the United States Department of the Treasury headquarters in Washington, D.C., U.S., August 29, 2020.
© REUTERS / ANDREW KELLY
Since 1960 Congress has raised the debt ceiling 80 times. Raising or suspending the debt limit allows the Treasury to borrow more money to pay expenses already approved by presidents and lawmakers.
The Democrat-controlled House of Representatives approved temporary legislation - a stopgap measure – on 21 September, aimed at keeping the government funded through early December and raising the limit on federal borrowing through the end of 2022. It included a rider of additional emergency aid for the resettlement of Afghans evacuated from Kabul in August.
However, Republicans baulked at backing the measure in the Senate. On Monday, the evenly-split Senate voted 50-48 to increase the debt ceiling, thus falling sort of the 60-vote supermajority required to approve the measure.
Democratic Senate Majority Leader Chuck Schumer earlier announced that he would ask the Senate for consent to hold a vote on Tuesday to increase the debt limit on a simple majority. Schumer denounced the GOP for creating a situation when, potentially, the American people would “pay the price" if the US ended up defaulting on its obligations.
The debt ceiling issue is one of three pieces of legislation that Joe Biden’s Democrats hoped to pass this week related to his expansive domestic agenda. The two key pieces of spending are the Build Back Better Act - a ten-year $3.5 trillion budget bill - and the $1.2 trillion Bipartisan Infrastructure Framework.
House Speaker Nancy Pelosi and other Democratic leaders have threatened to block the infrastructure bill if their wider ten-year budget legislation does not receive support.
“As we enter the final phase of legislative negotiations over the President’s economic package – the evidence is overwhelming that the wind is at our backs and the public is eager for both of these packages to become law,” said a White House memo on Monday referring to the $1.2 and $3.5 trillion spending bills.
The GOP has continuously raised concerns about Biden’s proposed huge spending bills as a "reckless taxing and spending spree.”