New York
CNN
—
Leaders in Washington are running out of time to avoid an unprecedented default on US debt. The top consumer watchdog in the federal government is warning of dire consequences for American families.
“It’s a big worry. Every family should be concerned,” Rohit Chopra, director of the Consumer Financial Protection Bureau, told CNN in an interview on Thursday.
If Congress fails to address the debt ceiling, the federal government could run out of money as soon as June 1, according to Treasury Secretary Janet Yellen. The nonpartisan Congressional Budget Office said Friday there is a “significant risk” the federal government will no longer be able to pay all of its obligations during the first two weeks of June.
Chopra said a default would cause borrowing costs — including credit card, car loans and mortgage rates — to spike because US debt serves as a critical benchmark for various forms of credit. US Treasuries have long been viewed as risk-free assets, keeping their rates very low.
“If global investors do not think that is completely safe, all of us will end up paying for it,” Chopra said.
Asked to react to former President Donald Trump dismissing a default as perhaps just a “week or bad day” to CNN’s Kaitlan Collins, Chopra declined to comment directly on political candidates. But in his response, Chopra made clear he has the exact opposite view.
“A lot of things we assume are part of our financial fabric would get ripped away,” Chopra told CNN.
He added that the CFPB, a brainchild of Massachusetts Democratic Sen. Elizabeth Warren that was created by the 2010 Dodd-Frank financial reform law, is “looking very hard” into the impact a default would have on households.
Some economists have warned of mass layoffs if the government defaulted. The White House has estimated more than 8 million jobs would get wiped out if there is a protracted default. Moody’s Analytics estimates that states including Florida, Ohio, Pennsylvania and Texas would lose hundreds of thousands of jobs apiece if there is a prolonged breach of the borrowing limit.
“From our own knowledge and oversight of the banking system, we know that everyone is extremely concerned. Corporate America, main street, all of it could be affected,” Chopra said. “The impacts are really quite acute, often for those who can least weather those economic storms.”
JPMorgan CEO Jamie Dimon echoed those concerns, pointing to the risk of mayhem in markets.
“The closer you get to it, you will have panic,” Dimon told Bloomberg on Thursday. “Markets will get volatile, maybe the stock market will go down, the Treasury markets will have their own problems…This is not good.”
Treasury Secretary Janet Yellen has been making calls to CEOs and business leaders to discuss the consequences of brinksmanship around the debt ceiling, a person familiar with the matter told CNN earlier this week.
The debt ceiling is very likely to be a focus next week when Yellen is scheduled to meet with leading bank CEOs in Washington at a trade association meeting.
President Joe Biden was scheduled to meet with Congressional leaders on Friday, but that meeting was postponed until next week as staffers try to make progress toward an agreement.
Even though there is still no clear path forward to avoid a default, observers are still cautiously optimistic that Congress will reach a deal, eventually.
Neil Bradley, chief policy officer at the US Chamber of Commerce, is encouraged that talks are ongoing and hopeful a bipartisan agreement will emerge soon.
“We never expected a deal this week, but we wanted to see real, ongoing discussions and that is what is happening,” Bradley told CNN.
Still, as the June 1st deadline approaches, the risk of a genuine crisis is rising.
Moody’s Analytics on Wednesday increased its probability of a breach of the debt ceiling to 10%, up from 5% previously.
“What once seemed unimaginable now seems a real threat,” Moody’s Analytics chief economist Mark Zandi wrote in a report.
A breach is not as serious as a default, which would only occur if Treasury failed to make a debt payment on time. A breach, on the other hand, would occur if the federal government fails to make a payment to any creditor on time, whether that be a Social Security recipient or the electric bill on a government building.
Financial markets have begun to price in a small — but growing — chance of a disastrous default.
The implied probability of a US government default over the next 12 months has roughly doubled since late March to 4.3%, according to modeling by research provider MSCI shared with CNN that is based on the cost to insure US debt in the market for credit default swaps.
