The S&P/ASX 200 Index (ASX: XJO) is well into the red today as investor angst over the US debt ceiling traverses the world.
In morning trade, the benchmark index is down 0.7%. And for once, the headwinds aren't coming from inflation.
The ASX 200 is following the lead of US and European markets, where all of the major indices sold off overnight.
Amongst the biggest headwinds to global equities right now are fears that the ongoing impasse over resolving the US debt ceiling will continue to drag on.
What's happening with the US debt ceiling?
If you thought you had some big bills to pay off, take a look at the balance sheet held by the US Federal government.
As it stands the Federal government owes just over its self-imposed US$31.4 trillion (AU$47.6 trillion) debt limit.
The last time the government increased the US debt ceiling was only back in December 2021, when they bumped it up by US$2.5 trillion.
Understandably, fears that the world's top economy could default on that mammoth level of debt, or even delay payments, is pressuring international markets and the ASX 200 is no exception.
Commenting on the ongoing negotiations between the White House and Congress to raise the US debt ceiling once more, treasury secretary Janet Yellen said, (quoted by The Australian Financial Review) "We are committed to not having missed payments and raising the debt ceiling."
Yellen said that the administration is not making plans for what to do in the event of a default but focusing on coming to an agreement with Congress.
"We're not involved in planning for what happens if there's a default," she said.
Time is running short
But time is running extremely short to lift the US debt ceiling.
In fact, the Federal government could run out of funds as early as next week.
"It's highly likely that we would run out of resources to meet all the government's obligations in early June and possibly as early as June 1," Yellen warned.
And she cautioned this could have further negative impacts on the markets. Which we can then expect to blow over into the ASX 200.
According to Yellen:
One of the concerns I have is that, even in the run-up to an agreement – when one does occur – there can be substantial financial-market distress. We're seeing just the beginnings of it.
Foolish takeaway
Despite the current sell-off and ongoing angst over the US debt ceiling, investors would be well-advised not to engage in any panic selling.
This has all played out in the markets before. And likely will again.
This latest debt crisis will pass, one way or another.
And with history as our guide, markets will almost certainly recover any losses incurred from this crisis, and then some, as the memory of yet another US debt ceiling impasse fades into the woodwork.
