The SEC Chairman’s Warning Concerning the Impact of Default

SEC Chair Warns US Default Would Have ‘Significant’ and ‘Lasting Effects’ on Investors, Markets.

It is clear that a U.S. debt default could cause profound and lasting damage to the market, so in this case, traders may consider the following recommendations:

1. Watch and Caution: Due to the uncertainty and volatility that a debt default could trigger in the market, traders are advised to maintain a wait-and-see attitude and adopt a more cautious trading strategy during this period. Avoid excessive exposure to risk until market conditions become clearer.

2. Diversify your portfolio: Consider reducing risk by diversifying your investments. Diversification across different asset classes, such as stocks, bonds, gold, etc., can help balance a portfolio and reduce the risk a particular asset class may face.

3. Consider safe-haven assets: In an uncertain market environment, some safe-haven assets typically perform better, such as gold and the U.S. dollar. Traders may consider increasing their allocations to these safe-haven assets to protect asset values.

4. Look for potential opportunities: Uncertainty and volatility in the market may also present some trading opportunities. Traders can look for opportunities that are less affected by this or that rally against the trend. However, this requires a more detailed market analysis and risk assessment.

5. Keep an eye on relevant news and political developments: Continue to monitor the impact of relevant news and political developments on the market. Talks from government officials, progress in debt ceiling negotiations, etc. can be important drivers of the market. Knowing and understanding this information in a timely manner can help make more informed trading decisions.

The original article is as follows:

Caixin, May 11 (Editor Huang Junzhi) – As the U.S. debt crisis enters a “countdown”, another influential U.S. government official has warned that a U.S. debt default could cause deep and lasting damage to the market.

Gary Gensler, chairman of the U.S. Securities and Exchange Commission (SEC), warned Wednesday that if the Democrats and Republicans fail to reach an agreement on raising the U.S. debt ceiling, it will affect market transactions, corporate financing capabilities and investors.

Gensler is a Democrat whom President Joe Biden appointed to chair the SEC in 2021. He said the impasse has already affected the shorter-dated U.S. Treasury bill market.

“If the U.S. Treasury, as the issuer, does default, it will have a very significant and unpredictable impact on investors, issuers and markets, and it could be lasting.” He said.

Yellen: Debt Default Would Lead to Economic Disaster

Earlier, U.S. Treasury Secretary Yellen also warned that if Congress fails to raise the federal government’s debt ceiling, and the resulting default, it would trigger an economic disaster that would lead to higher interest rates and even a crisis in the dollar’s hegemony in the coming years.

“A debt default would lead to an economic and financial disaster that would permanently raise the cost of borrowing, and the cost of future investments would rise dramatically.” Yellen noted that if the debt ceiling is not raised, U.S. businesses will face deteriorating credit markets and the government may not be able to make payments to military dependents and seniors who rely on Social Security.

In January, the U.S. federal government debt reached the legal limit of about $31.4 trillion. The U.S. Treasury Department then deployed so-called extraordinary measures to temporarily avoid a debt default, although these measures can only be maintained until early June. Yellen expects that the U.S. federal government may hit the debt ceiling and default on its debt as soon as June 1.

To this end, President Joe Biden on Tuesday met with the “Big Four” leaders of Congress – House Speaker McCarthy, Senate Majority Leader Chuck Schumer, Senate Minority Leader Mitch McConnell, House Democratic Leader Jeffries (Hakeem Jeffries (R-Texas), to discuss the debt ceiling issue, but no progress was made. The officials agreed to meet again this Friday.


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