Beth Hammack, the Goldman Sachs executive, chair of the U.S. Treasury Department’s Borrowing Advisory Committee and member of the firm’s Management Committee, has recently warned of the potential risks of the U.S. defaulting on its debt obligations. She strongly emphasised that such action “would be bad for the American people, bad for the dollar, and bad for the U.S. government”, as it could lead to a situation where the U.S. currency is no longer seen as the “world’s reserve currency”.

Moreover, in a Tuesday interview on Bloomberg Television, Hammack warned that a prolonged period of debt disagreement could put “real risk to the U.S. dollar”, as investors may question its strength and deemed it unsafe in comparison to other assets. She also reiterated that dislocations being created in the T-bill markets “creates extra cost for the taxpayers”.

These risks were further recognized by Federal Reserve Chairman Jerome Powell, who said that a default “could result in adverse market reactions and pose risks to the U.S. economy.” Treasury Secretary Janet Yellen’s warning of “catastrophic consequences for the U.S. economy” further points to the repercussions of the U.S. default.

The consequences of such a move would be far-reaching, especially since more than 35% of the global debt is issued in US dollars and the US dollar remains the world’s reserve currency. It could result in debilitated global economic growth and possible crisis, as the shockwaves of a U.S. default could affect the entire world’s economy.

Thus, it is vital that the U.S. government continues to pay its bills and take necessary measures to ensure the continuous flow of financial payments. More effective economic policies must be implemented to avert this crisis. Without this, not only the U.S. economy, but the global economy will be at risk.



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