How do you prepare for an unprecedented event that sounds, from some quarters, like it’ll practically unleash the end of civilization as we know it? And what do you do if you’ll be at the center of whatever calamity unfolds?

That’s the dilemma facing financial firms and central banks around the world. They are strategizing how to protect markets – and their own survival – in case the U.S. Congress fails to lift the so-called debt ceiling, which would result in a potentially calamitous default. For global readers, the U.S. sets a limit on how much debt it can borrow to cover spending it’s already agreed to. That means once the government hits the ceiling, it can no longer pay all its bills. The issue has increasingly been used by Republicans as a negotiating tactic to extract policy concessions from Democrats.

Away from the politics, however, banks and other financial institutions just need to figure out how to deal with the fallout, which could cause global markets to plunge, the dollar to crash and unemployment to soar – for starters.

I asked John Diamond, an economist and finance expert at Rice University, what banks in the U.S., as well as the Federal Reserve, are likely doing as the clock ticks down to D-Day on June 1. His answer: War rooms, warnings and lots of worrying.

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Bryan Keogh

Deputy Managing Editor and Senior Editor of Economy and Business, The Conversation U.S.

War rooms and bailouts: How banks and the Fed are preparing for a US default – and the chaos expected to follow

John W. Diamond, Rice University

Major players in the financial system are pondering the unthinkable as the US inches closer to an unprecedented default.

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  • “Contrary to popular belief, the original Luddites were not anti-technology, nor were they technologically incompetent. Rather, they were skilled adopters and users of the artisanal textile technologies of the time. Their argument was not with technology, per se, but with the ways that wealthy industrialists were robbing them of their way of life."

    – Andrew Maynard, professor of advanced technology transitions at Arizona State University, from his story What’s a Luddite? An expert on technology and society explains





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