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JPMorgan Chase boss says bank is preparing for potentially catastrophic federal default

JPMorgan Chase has begun preparing for the possibility of the United States hitting its debt limit, CEO Jamie Dimon told Reuters on Tuesday, adding he nevertheless expected policymakers to find a solution to avoid that ‘potentially catastrophic’ event.

With federal funding due to expire on Thursday and a potential debt default by October 18, Democrats who narrowly control the Senate and House are racing to head off fiscal disaster while also passing President Joe Biden‘s ambitious $3.5 billion spending package. 

JPMorgan, the country’s largest bank, has begun scenario-planning for how a potential U.S. credit default would affect the repo and money markets, client contracts, its capital ratios, and how ratings agencies would react, Dimon said in an interview.

‘This is like the third time we’ve had to do this, it is a potentially catastrophic event,’ he said, referring to prior Congressional deadlocks over federal debt limits.

JPMorgan Chase CEO Jamie Dimon says the bank has begun preparing for the possibility of the United States hitting its debt limit, calling it a ‘potentially catastrophic’ scenario

With pressure mounting, President Joe Biden and Democrats are trying to head off a fiscal emergency as well as pass their massive $3.5 trillion spending bill

With pressure mounting, President Joe Biden and Democrats are trying to head off a fiscal emergency as well as pass their massive $3.5 trillion spending bill

‘Every single time this comes up, it gets fixed, but we should never even get this close. I just think this whole thing is mistaken and one day we should just have a bipartisan bill and get rid of the debt ceiling. It’s all politics,’ he added.

Congressional Democrats are scrambling to find a way to raise the government’s $28.4-trillion borrowing cap before the Treasury Department runs out of ways to service the nation’s debt. 

Treasury Secretary Janet Yellen has said the Treasury will likely exhaust extraordinary measures by October 18, potentially triggering the first federal credit default in history.

Democrats had hoped to avoid a partial government shutdown and to suspend the federal debt ceiling with a single vote. But they were blocked on Monday in the Senate by Republicans, who said the two matters should be dealt with separately.

Fiscal brinkmanship has become a regular feature of U.S. politics over the past decade thanks to ongoing partisan polarization, with debt ceiling deals coming down to the wire in 2011 and 2017.

Dimon said as part of its preparation the bank was combing through its client-contracts, a resource-intensive process.

‘You’ve got to check the contracts to try to predict it out … If I remember correctly, the last time we got prepared for this, it cost us $100 million,’ he said.

Senators fail to pass the government funding bill on September 27, 2021

Senators fail to pass the government funding bill on September 27, 2021

With pressure mounting, Biden and Democrats in Congress strained Tuesday to trim back his $3.5 trillion government overhaul to win support from two key holdout senators ahead of make-or-break deadlines for votes. 

With Republicans solidly opposed to tying the debt ceiling to Biden’s spending package, and no Democratic votes to spare, Senators Joe Manchin of West Virginia and Kyrsten Sinema of Arizona now hold the key votes in the evenly divided Senate.

Biden is under pressure to close the deal with Manchin and Sinema, who are seen as linchpins for the final package. 

The two centrist senators have said they can’t support Biden’s proposed price tag and are now being pressed to say how high they are willing to go.

The president met separately with them at the White House seeking agreement before a Thursday test vote. 

‘Really good, honest, straightforward negotiations,’ Manchin told reporters back at the Capitol. He said he did not give Biden a new topline figure.

And it’s not just Biden’s fellow Democrats in the Senate. A small number of House Democrats also are bristling at the far-reaching scope of Biden’s domestic agenda and demanding changes before agreeing to vote yes.

House Speaker Nancy Pelosi told reporters at the Capitol, ‘In the next day or so we hope to come to a place where we can all move forward.’ 

Joe Manchin

Kyrsten Sinema

Democratic Senators Joe Manchin of West Virginia and Kyrsten Sinema of Arizona now hold the key votes in the evenly divided Senate

‘We´re obviously at a very sensitive time,’ said White House press secretary Jen Psaki.

The president, she said, is ‘not going to tell anyone what to do. He’s going to have a discussion, have an engagement.’ 

The closed-door talks come after Republican senators for a second time blocked a bill to keep the government operating past Thursday and allow federal borrowing, risking a federal shutdown and devastating debt default – though both seem highly unlikely.

Democrats said they will try again before Thursday´s deadline to pass a bill funding government operations past the Sept. 30 fiscal year-end, likely stripping out the more-heated debate over the debt limit for another day, closer to a separate October deadline.

Taken together, it’s all putting the entire Biden agenda perilously closer to collapse, with consequences certain to shape his presidency and the lawmakers’ political futures. 


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