The mother of all financial crises is happening before our eyes

Note: These quotes were taken from Kellie Wood's presentation at Livewire Live 2024 on 17 September 2024.

For more than 200 years, the United States has had an unblemished track record when it comes to paying off its debts. In every instance, the United States Congress has been able to raise the debt ceiling (the upper limit of the amount of debt that can be incurred by the United States Treasury) before a default has occurred. 

Though, that's not to say there haven't been some close calls. Most fresh in the minds of investors was the 2011 crisis where the delay in raising the debt ceiling resulted in the first downgrade in the United States' credit rating (by S&P Global Ratings). That downgrade led to a sharp drop in the stock market and a big increase in borrowing costs. 

Since then, there has been the odd government shutdown. But is this time too close to call? So close that a default is, in fact, inevitable?

Schroders' Kellie Wood certainly believes so. At the recent Livewire Live investor event, Wood argued:

"America's fiscal house is not in order and a US recession that triggers a US default will sink the global economy. This is the mother of all crises."

As Wood explains in her Shocking Prediction, all four factors affecting America's credit profile have deteriorated in recent years but none more so than waning fiscal strength. This problem can be summarised in one simple fact: US debt (US$35 trillion+) is now greater than the size of the US economy itself (US$28.78 trillion).

So what does this slow-burning but important economic trend mean for markets and investors? 

Find out in the above clip from Wood's Shocking Prediction. If you'd rather watch the entire Shocking Prediction, you can access that via this link here:

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