JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said companies, insurance funds and investors would lose access to markets if the U.S. appears to be headed toward a default related to its debt limit.
“If the United States actually defaults on our debt it would be catastrophic,” Dimon, 55, said at a U.S. Chamber of Commerce event in Washington yesterday, when asked what may happen if the U.S. fails to increase its $14.29 trillion debt limit.
The government will reach its legal debt limit between April 15 and May 31 if Congress doesn’t act, the U.S. Treasury Department said March 1. The department, which may provide an updated timeline in early April, has said it could get an extra eight weeks before it exhausts emergency steps to avoid breaching the limit.
“The Treasury is on track to bump into the debt ceiling in the second half of May,” said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey. “Our own estimates suggest that they will need to start using accounting gimmicks in late May, and will exhaust the normal bag of debt-ceiling tricks at some point in July.”
Dimon, who’s also chairman of New York-based JPMorgan, the second-biggest U.S. bank by assets, said the U.S. would be “crazy” to leave the debit-limit question unresolved and that market participants eventually would need to take “drastic action.”
“Companies like us, every single company with Treasuries, every insurance fund, every requirement, it will start snowballing,” Dimon said. “All short-term financing would disappear.”
U.S. Senator Marco Rubio, a Florida Republican, has said he won’t approve a debt-limit increase without a range of tax-and-spending reforms.
“We need to use the debt limit itself as the way to ensure that America’s debt limit begins to decline, not always go up,” Rubio said in a March 29 television interview with Fox News. “How about the debt limit starting to go down? These are the kinds of things that I hope we’ll focus on.”
Treasury Secretary Timothy F. Geithner has said the nation will suffer “catastrophic damage” if it loses investors’ confidence. He also has said it would be “unworkable” to give priority to payments on the national debt over other government obligations, as proposed by U.S. Senator Pat Toomey, a Pennsylvania Republican.