Congress is once again bickering about raising the debt ceiling, the amount of money the US government can borrow to pay its bills on time. And that means that Corporate America has to be ready for the worst.
\nThe CEO of Bank of America (BAC), America\u2019s second-largest bank, told CNN he hopes lawmakers resolve their issues, because the market and economy love stability. Yet defaulting on the country\u2019s debt remains a possibility that cannot be ignored.
\n\u201cWe have to be prepared for that, not only in this country but in other countries around the world,\u201d Bank of America CEO Brian Moynihan told Poppy Harlow on \u201cCNN This Morning\u201d Monday. \u201cYou hope it doesn\u2019t happen, but hope is not a strategy \u2014 so you prepare for it.\u201d
\nPresident Joe Biden may touch on the topic in Tuesday\u2019s State of the Union address. US Treasury Secretary Janet Yellen has already warned Congress that the country could default on its financial obligations as soon as June if the debt ceiling is not raised before then.
\nYellen subsequently said there could be a \u201cglobal financial crisis\u201d if there is no debt limit agreement. The Treasury Department is now taking \u201cextraordinary measures\u201d to continue paying bills on time.
\nThe latest drama about the debt ceiling has led to some calls for the government to get rid of it entirely. The argument is that political squabbles shouldn\u2019t prevent the US from meeting its financial commitments.
\nMoynihan isn\u2019t a fan of that idea. He told Harlow that \u201cthere\u2019s got to be an argument about how we make sure we live within our means as a country\u201d when asked whether or not the US should eliminate the debt ceiling.
\n\u201cCongress has the purse strings. i would be careful about trying to restructure the US Constitution,\u201d he said. \u201cI think we should leave it alone and make sure it operates correctly.\u201d
\nBut he conceded that the government has needed to spend a lot more on various stimulus programs since 2020 due to the Covid-19 crisis, saying that the US had to take on \u201ca lot of debt over the past couple of years to overcome the pandemic drag on the economy.\u201d
\nThe economy has rebounded sharply from the depths of the brief Covid downturn. So much so that inflation is now arguably the biggest problem facing the country, as well as the Federal Reserve.
\nThe Fed has raised rates aggressively for the past year to try to choke off inflation. The rate hikes have started to work, but the US job market remains shockingly strong.
\n\u201cThe unemployment rate has stayed very low. Extremely low,\u201d Moynihan told Harlow. \u201cThat\u2019s one of the challenges for the Fed.\u201d
\nWith that in mind, Moynihan said, Bank of America is still predicting a \u201cmild recession\u201d at some point in the future \u2014 but the start date keeps getting pushed. He argues that higher rates could be a drag on corporate profits, but the good news is most people are still working, earning good wages and spending.
\nMoynihan also didn\u2019t seem overly concerned that any geopolitical tension between the US and China stemming from the recent spy balloon incident will have a lasting impact on the global economy.
\nHe told Harlow that given China\u2019s importance in the global supply chain, it\u2019s in everyone\u2019s interests to not have any economic tensions escalate.
\n\u201cIt\u2019s interesting to watch the shadowboxing between these two countries,\u201d Moynihan said. \u201cBut the best thing in the world is to have free trade.\u201d<\/p>\n
Cnn<\/p>\n
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