What assets could a debt ceiling fight impact?

The US debt ceiling fight could impact most financial assets. For example, Bitcoin could react to this fight in one way or another. Some analysts believe raising the debt ceiling would prompt the Fed to print more money, thus boosting capital inflows into “risky” assets like Bitcoin.

Top US Senate Republicans on Tuesday called on President Joe Biden to accept their party’s debt-ceiling package or make a counter-offer, while a top Democrat said the Senate might try to advance a “clean” debt-ceiling hike next week. Late on Monday, the Treasury Department had said the US could run out of the cash needed to pay its bills in the next month.

The debt ceiling represents the maximum amount of money the US government can borrow to pay its bills. In other words, a deflationary recession is coming, and it will likely force the Fed to return to a quantitative easing policy. When the debt ceiling is lifted and credit-contraction leads to economic crisis, policymakers will have to print money on a massive scale.

The government has already hit its $31.4 trillion debt ceiling in January 2023 and theoretically cannot generate more capital until the US Senate passes the bill to raise the ceiling.

If Republicans decide to go the kamikaze route during the current debt ceiling standoff, it will deliver another major hit to the dollar’s credibility—and a further boost to Bitcoin. Presenting a similar outlook, another viewpoint suggests that extending the debt ceiling would ensure that the Fed continues contracting its balance sheet through ongoing quantitative tightening (QT). That points to lower liquidity and, in turn, more downside pressure for Bitcoin.

Gold prices surged after Treasury Secretary Janet Yellen said the U.S. could run out of money to pay its bills by June 1 if Congress fails to raise or suspend the debt ceiling. Gold futures traded to a high today of $2026.40. As of 5:30 EST the most active June 2023 contract of gold is currently up over $25 and fixed at $2025.60. Gold broke out of a pattern called a “descending top and a flat bottom” as today’s solid gains broke above the upper descending trendline.

Yellen promised to keep Congress updated and warned that it was “impossible to predict with certainty the exact date when Treasury will be unable to pay the government’s bills.” She also urged Congress to act as soon as possible, saying that failure to do so would lead to serious harm, damaging business and consumer confidence, raising short-term borrowing costs, and negatively impacting the credit rating of the United States of America.