What Is Debt Default?: How US Economy Risks Could Impact Crypto Market?
Crypto Market News: Amid growing concerns of recession and slowdown in the economy, the US lawmakers are struggling to keep the borrowing in control. This means the country is failing to cut down its borrowings to stay within the debt ceiling. In a worrying development, the US Treasury Department recently said it was implementing extraordinary measures to keep the country from defaulting on its debt. In 2022, the Congress had set the $31.4 trillion debt ceiling limit, which the US breached recently.
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What Is Debt Default?
When a country fails to repay its debt, it is considered as defaulting on the debt. Such a default would have a negative bearing on the country’s economy, impacting stock markets, increased risk of inflation and rising interest rates. In the current global macroeconomic scenario, the US could well be announced as going through a recession environment if its defaults. Voices are rising in the US warning about the risks associated with the chance of debt default.
In a latest, Brian Moynihan, CEO of Bank of America, said the US debt default is a possibility that should be gauged in terms of preparedness. Speaking to CNN, Moynihan indicated that banks should be prepared in the event of default.
“We have to be prepared for that, not only in this country but in other countries around the world. You hope it doesn’t happen, but hope is not a strategy, so you prepare for it.”
Crypto Market – Recession Worries
In this context, the crypto market could be at risk if such debt default becomes reality sometime in 2023. Cryptocurrency prices could decline as a result of panic selling in stock markets and high liquidations by traders. When the pandemic struck in early 2020, slowdown in economic activity and stock market crash led to crypto price decline. A similar environment could repeat if the US defaults. At least, the popular market sentiment is that recession could trigger massive selloff and price crash in cryptocurrencies.
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