$AMC Entertainment(AMC)$ $AMC Entertainment(AMC)$

U.S. Debt Ceiling Suspension Ends, Congress Unclear on Next Step

(They just left for a 6 week recess/break lol)

Source: Bloomberg

What this means?

There is NOW a limit to the existing amount of debt the US Treasury can hold/accumulate. That debt amount limit is now US$28,500,000,000,000.00 (US$28.5 Trillion). Previously since 2019, there was no Debt Ceiling. But now as of Sunday (Today), they can't owe/borrow $$ (Incur Debt) beyond US$28.5 Trillion.

What happens when the debt ceiling is hit?

Once the government hits the debt ceiling and exhausts all available extraordinary measures, it is no longer allowed to issue debt and soon after will run out of cash-on-hand. At that point, given annual deficits, incoming receipts will be insufficient to pay millions of daily obligations as they come due. Therefore, the federal government will have to at least temporarily default on many of its obligations, from Social Security payments and salaries for federal civilian employees and the military to veterans’ benefits and utility bills, among others.

A default, or even the perceived threat of one, could have serious negative economic implications. An actual default would roil global financial markets and create chaos, since both domestic and international markets depend on the relative economic and political stability of U.S. debt instruments and the U.S. economy. Interest rates would rise, and demand for Treasuries would drop as investors stop or scale back investments in Treasury securities if they are no longer considered a perfectly safe investment, thereby increasing the risk of default. Even the threat of default during a standoff increases borrowing costs.

If interest rates for Treasuries increase substantially, interest rates across the economy would follow, affecting car loans, credit cards, home mortgages, business investments, and other costs of borrowing and investment. The balance sheets of banks and other institutions with large holdings of Treasuries would decline as the value of Treasuries dropped, potentially tightening the availability of credit as seen most recently in the Great Recession.

Summary:

Higher borrowing costs will trickle down to Financial Institutions

(Example Hedge Funds that borrow to short stocks, may increase Margin Call chances on them as costs to leverage becomes higher)

Disclaimer: Not Financial Advice.