By Davide Barbuscia
CHICAGO (Reuters) – Former U.S. Treasury Secretary Lawrence Summers said the odds that the U.S. government could face a technical debt default due to legislation around its borrowing limit were at around 2%-3%, but that any default would be fixed quickly.
A standoff between Republicans and Democrats over raising the U.S. borrowing limit has started to impact money markets, with incoming tax receipts recently indicating that the deadline to raise the $31.4 trillion borrowing limit could be sooner than expected.
“I think the odds on a technical default associated with the debt limit legislation over the next few months are 2% or 3%, and if it happens it will be repaired fairly quickly,” Summers said at a Morningstar investment conference in Chicago.
He said that the chances of a default due to insolvency were, instead, much lower.
“I think the odds that we will default in the sense of insolvency, and over some interval people who hold bonds will not be able to get paid, are – assuming the absence of a major war – certainly under 2% over the next decade.”
The comments come as Republican U.S. House Speaker Kevin McCarthy said lawmakers would vote on Wednesday on a bill to raise the $31.4 trillion federal debt ceiling and slash spending, despite lingering dissension within their ranks over the bill.
On the other hand, the White House has called on Congress to raise the debt limit without conditions, as it did three times under Biden’s Republican predecessor, Donald Trump.
JPMorgan (NYSE:JPM) warned last week that there was a “non-trivial” risk of a technical default on U.S. Treasuries, and that the debate over the debt ceiling would likely run “dangerously close” to its final deadline.