(Fortune) - A failure to reach a deal to raise the debt ceiling before next week’s “hard deadline” will trigger a market crash, Wall Street’s “Dr. Doom” has warned.
Roubini Macro Associates CEO Nouriel Roubini—nicknamed “Dr. Doom” on Wall Street after predicting the 2008 financial crisis—told Bloomberg TV at the Qatar Economic Forum on Wednesday that negotiators taking the deal to the wire were creating risks for the stability of financial markets.
“They may get to the last hour before there’s an agreement,” he said. “Or it’s possible they don’t reach an agreement. If that doesn’t happen, then the market is going to crash. That may force an agreement in the [following] few days.”
Roubini, who is also professor emeritus of economics and international business at NYU Stern, speculated that any default from America could undermine the greenback’s dominance as a reserve currency. Calls for a move away from the U.S. dollar have been growing this year, with countries from Brazil to China seeking an acceleration of de-dollarization.
“There is a lot of talk these days about de-dollarization,” he said on Wednesday. “If the U.S. were to have a real problem with debt, a credit event and so on, that’s going to increase the likelihood that people are going to diversify, over time, away from dollar assets.”
Investors across the globe are closely monitoring ongoing bipartisan talks on raising the debt ceiling, as the U.S. edges ever closer to an unprecedented default on its debts.
The ‘hard deadline’ approaches
Treasury Secretary Janet Yellen said over the weekend that June 1 was the “hard deadline” for raising the federal debt limit.
Negotiators have yet to reach an agreement, with Biden labeling concessions offered by GOP lawmakers “unacceptable” on Sunday and talks reaching another impasse on Tuesday.
However, Republican House Speaker Kevin McCarthy struck a note of optimism following Tuesday’s negotiations, saying he believed a deal could be made before the nation runs out of cash to pay its bills.
“We’re not there yet,” he told reporters in Washington. But he added: “We could still finish this by June 1.”
With the deadline looming, however, Louisiana Rep. Garret Graves told journalists on Capitol Hill Tuesday evening that a “significant gap” remained between White House and Republican negotiators.
Roubini isn’t alone in predicting a catastrophic outcome if the deadline to increase the debt ceiling—known as the X-date—passes without a resolution in place.
In January, Moody’s Analytics said a debt default could deal a $12 trillion blow to the U.S. economy, sparking a downturn comparable to the one brought on by the global financial crisis.
Last week, a group of more than 140 CEOs and high-profile Wall Street figures warned stocks would crash if lawmakers could not raise the debt ceiling.
“We write to emphasize the potentially disastrous consequences of a failure by the federal government to meet its obligations,” they wrote in an open letter to President Biden and Congress.
Meanwhile, former Treasury Secretary Larry Summers labeled the gridlock in negotiations “a foolish exercise,” arguing that the standoff could slash $6 trillion from the stock market.
By Chloe Taylor