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Clock ticking on US government default

Clock ticking on US government default

A very quiet day on the markets today with the US and Canada closed in celebration of Columbus Day and Japan closed for ‘National Sports Day’. As a side note the US has also chosen October 14th as National Indigenous Peoples Day.

Although officially a public holiday it is expected that the US partisan negotiations will continue today as we are only 3 days from a supposed US default.

How will the US default?

On Thursday October 17th the US must make in standard monthly interest payments on its near $17 trillion of debt. As we stand the US does not have enough money in its bank accounts (borrowed or otherwise) to make this payment.

The US could easily borrow enough money to make its next interest payment (a false economy in itself but not a conversation for this article) but in order to do so it needs the agreement of Congress.

All this uncertainty increases risk in the markets and in a strange irony the money flows back into USD, the worlds funding currency. But the closer we get to a US default the more US dollar will be sold as investors will not want to get caught holding a currency that could rapidly devalue.

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