Goldman Sachs, Yellen Warn of US Default’s ‘Catastrophic Consequences’ — ‘There Is Real Risk to US Dollar’

A Goldman Sachs executive who also serves as the chair of a Treasury advisory committee has warned that a U.S. default poses “real risk to the U.S. dollar.” She stressed: “Anything that moves us away from being viewed as the world’s reserve currency, of being the safest most liquid asset in the world, is bad for the American people, bad for the dollar, and bad for the U.S. government.”

Goldman Sachs executive Beth Hammack warned about the risks of the U.S. defaulting on its debt obligations in an interview on Bloomberg Television Tuesday. Hammack is co-head of Goldman Sachs’ Global Financing Group within the Investment Banking Division (IBD) and a member of the firm’s Management Committee. She also serves as the chair of the U.S. Treasury Department’s Borrowing Advisory Committee.

Regarding a possible U.S. debt default, she said: “This is a conundrum for all international investors. They don’t understand why we’ve made these appropriations and we’re not willing to pay the bills that we already agreed we would pay. And so I think that’s really confusing.”

The Goldman Sachs executive warned, “I think there is real risk to the U.S. dollar as we leave this in a more protracted state of negotiations,” emphasizing:

Anything that moves us away from being viewed as the world’s reserve currency, of being the safest most liquid asset in the world, is bad for the American people, bad for the dollar, and bad for the U.S. government.

The chair of the Treasury Borrowing Advisory Committee proceeded to explain that the dislocations being created in the U.S. Treasury bill markets are “inefficient” and they “create extra cost for the taxpayers.”

The Treasury bill markets began factoring in the risks of the U.S. defaulting on its debt obligations from next month onward after Treasury Secretary Janet Yellen and the Congressional Budget Office warned that the Treasury may not be able to pay all of the government’s bill in early June.

The Goldman Sachs executive said she agreed with Treasury Secretary Yellen that the U.S. defaulting on its debt obligations would have “catastrophic consequences for the U.S. economy.” Moreover, she cautioned that there would be “a huge ripple effect” if the Treasury stops making some payments.

On Tuesday, Yellen said at a press conference ahead of a G7 meeting in Japan that a default would “risk undermining U.S. global economic leadership and raise questions about our ability to defend our national security interests.”

A lawmaker said this week that a default poses risks to the U.S. dollar’s reserve currency status. Federal Reserve Chairman Jerome Powell has also warned of “uncertain and adverse consequences” from the U.S. defaulting on its debt obligations.

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