The financial markets, especially the short-term Treasury market, will take a knock even if there is a debt ceiling deal that avoids a U.S. default
If or when there is a debt ceiling deal, the Treasury Department will need to go on a selling binge to replenish its cash supplies. Ari Bergmann, the founder of Pneso Advisors, told Bloomberg that he estimates the Treaury’s cash needs at more than $1 trillion by the end of the third quarter. The deluge of supply as the Treasury rushed to sell bills, notes, and bonds would, he warns, the supply burst would drain liquidity from the banking sector, raise short-term funding rates, and tighten the liquidity just as the U.S. economy is on the edge of recession. Bloomberg reports that Bank of America estimates the wave of supply from Treasury Department sales would have the same economic impact as a quarter-point interest-rate hike.
