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The US debt ceiling situation will bring correction in stocks and crypto markets. If the debt ceiling deal between President Joe Biden and Republicans failed, it will be “catastrophic” for the global market. However, if the deal is reached, it will pull liquidity out of financial markets. Investors could dump stocks and crypto they own to buy high-yield Treasury bills and debt funds.
As per Goldman Sachs, the US Treasury Department expects to issue $600-$700 billion in Treasury bills weeks after the debt ceiling deal. Treasury Secretary Janet Yellen warned that the US Treasury will run out of funds by June 1. The Treasury General Account fell to $57 billion from $316 billion earlier in May, with the opening balance of $636 billion this fiscal year.
Meanwhile, President Joe Biden and Republicans have not reached a deal after two days of meeting. House Speaker Kevin McCarthy is confident about a deal before the June 1 deadline. President Biden doesn’t agree to spending cuts in the federal budget and Republicans rejected Biden’s push for new taxes.
Goldman Sachs expects $1 trillion in T-bills this year to restore the US Treasury’s cash balance. Bank reserves would drop by $500 billion due to T-bills, fall in bank deposits, and the Fed rate hikes.
US Fed officials are planning to raise interest rates by over 6% due to inflation and a tight jobs market. The US dollar liquidity issue will cause Bitcoin and crypto prices to fall for a short time. Typically, Bitcoin moves inversely with US treasuries and the US dollar. The US dollar index (DXY) has again jumped over 103.50 amid stringent market conditions.
Stocks and Crypto To Crash After Debt Ceiling Deal?
BTC price currently trades at $27,360, up 2% in the last 24 hours. The upward push came from Asian traders in anticipation of the US debt ceiling deal. After some weeks, Bitcoin will rally as investors move money to crypto amid the deteriorating US dollar dominance.
However, stock markets globally remain weaker due to the upcoming impact of the deal. The stock market crashed by 20% in 2011 due to the debt ceiling crisis, if similar conditions happened this time the stock market could crash by 40%, as per Bloomberg market data.
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