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Debt Ceiling Standoff

06/02/23

News

Debt Ceiling Standoff: “I’m writing to inform you…”

2 Min Read

So begins the letter from Treasury Secretary Janet L. Yellen to House Speaker Kevin McCarthy on January 13, 2023. The full letter – you know, light bedtime reading – explains that debt ceiling has been reached and “extraordinary measures” were now in play to prevent default on national debt.

For the last four months, you’ve probably been running your finance contingency plans six ways to Sunday. We feel you. The brinkmanship of the current political negotiation has us all on edge. Some suggest that the squabbles will pave the way to recession. Another analysis outlines five possible scenarios ranging from the key decision-makers appealing to their better angels to, well, Armageddon.

CFO preparations

Short of a crystal ball, how might CFOs prepare? In any scenario, CFOs should anticipate higher borrowing costs, lower demand, and lower spending. With a seizing up of capital, companies may also be forced to make cuts in personnel with layoffs or hiring freezes. Many have already shifted deposits – to the tune of $550 million – from regional to larger banks in a bid to protect liquidity. If you hold a government contract, be prepared for delays of receivables. And while it’s not the strict purview of CFOs, you may also hear from aging loved ones if social security checks totaling $25 billion are caught up in the mess which could halt 10% of our economic activity.

Even with blow-by-blow press coverage, no one knows how this all plays out. They may raise the ceiling, default, or kick the can down the road. Regardless, our elected representatives on both sides – who might have long ago anticipated this unpleasant juncture – would do well to remember the ordinary people and put a ceiling on their own political posturing.

 

“It’s a hostage negotiation! It’s a lunch conversation! No, it’s the debt ceiling debate.”
Eric Thompson, The Atlantic, 2011Nations, 2015

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