Lawmakers and the White House appear set to avert a calamitous U.S. government default, but stock-market investors need to be aware that what comes next could still make for a bumpy ride.
For weeks, analysts have been sounding the alarm over the potential for a resolution of the debt-ceiling standoff to lead to a sudden drain in market liquidity.Here’s the situation: The Treasury has spent 2023 maneuvering to keep the U.S. government below its $31.4 trillion debt ceiling. As a result, the Treasury General Account — think of it as the U.S.
That could deplete bank reserves as depositors move money into safe, higher-yielding government debt. In the past five months, the Treasury General Account balance dropped by around $360 billion in actual, rather than annualized, dollars, Blitz noted. That means that $360 billion was spent over that period that was neither taxed nor borrowed, amounting to 3.3% of five months of nominal gross domestic product. That helps explain why growth seemed so “resilient,” he said.