The dollar is at 'real risk' as the political deadlock over the US debt ceiling undermines investor confidence, Goldman Sachs' Beth Hammack says

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The dollar is at 'real risk' as the political deadlock over the US debt ceiling undermines investor confidence, Goldman Sachs' Beth Hammack says
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  • The political deadlock over the US debt ceiling poses a 'real risk' to the dollar, according to Goldman Sachs' Beth Hammack.
  • "There is real risk to the US dollar as we leave this in a more protracted state of negotiations," she told Bloomberg TV.
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The dollar's status as the world's reserve currency is at "real risk" as the drawn-out political deadlock over the US debt limit threatens to undermine global confidence in American assets, according to Beth Hammack, co-head of Goldman Sachs' global financing group.

"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," Hammack, who has chaired the Treasury Borrowing Advisory Committee for roughly five years, told Bloomberg TV. "And so I think that's really confusing - I think there is real risk to the US dollar as we leave this in a more protracted state of negotiations."

Hammack's worries echo a number of other market pundits and commentators who have raised concerns about the ongoing political wrangling over the need to raise the government's borrowing limit - should lawmakers fail to reach an agreement, the US could end up defaulting on its debt. Such an eventuality could hurt international investors' confidence in the greenback.

"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 US government," Hammack said.

She explained that there are dislocations being created in the US Treasury bills market, which "create extra costs for the taxpayers." In the extreme scenario where the Treasury stops making payments, she said that "would just have a huge ripple effect through the economy."

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Hammack agreed with Treasury Secretary Yellen that a US debt default would have 'catastrophic' consequences for the US economy and said she was hopeful that President Joe Biden's meeting with congressional leaders later that afternoon would find some path forward toward a solution.

Lawmakers have been sparring over the debt limit, with House Speaker Kevin McCarthy recently proposing a bill that would lift the borrowing limit by $1.5 trillion while cutting spending by $4.5 trillion. Tuesday's meeting was the first Biden had with McCarthy after months of political deadlock. However, McCarthy said there's still no progress toward a solution.

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