, July 19, 2011 9:52 am
Is the U.S. government going to default on it’s credit card bills? That’s really what we’re talking about: raising the debt ceiling to pay past bills. Despite all the political posturing that’s gone on in recent weeks, I’m convinced a default will not happen. I’ve been watching the developments very closely…concerned about any impact on client investments. This is all so unecessary and annoying to watch. Last week two credit rating agencies indicated they’ll downgrade the U.S.’s rating if a deal isn’t reached by Congress soon. That would mean higher borrowing costs…for everybody. The White House says they need a deal by July 22nd in order to get it written as a bill and then sent to both houses of Congress. Treasury Secretary Tim Geithner (an adult professional) says August 2nd is the drop dead date…some in the House don’t believe him.
How would a default hurt investors? I’ve heard and read different scenarios…none of them good. Fed Chairman BenBernanke (another adult professional) has told Congress there would be “shock waves through the entire financial system”. Given the importance of the American financial system on the world, there would surely be a serious ripple effect that would spread like a virus. Numerous economists believe worldwide markets would drop, dollar-denominated assets would take a hit and the shaky economies (including ours) would slide back into a recession. Remember when Congress voted down the first bank bailout bill in September of 2008 right before the last presidential election? U.S. stock markets fell roughly nine percent in a single session. That turned out to be the gun that Congress had to put to its collective head to pass the stimulus. (Is that what Sarah Palin is talking about when she talks about “reloading”?)
So, meetings over the weekend and surely a busy week ahead. If you aren’t paying attention yet, you’d better start. This is serious stuff. Both sides have made their point, although today the House is expected to waste time by passing a balaned budget Constitutional Amendment. It’s all about politics for them, I guess. Time to get down to business. Give your Congress person and Senator a call and tell them to increase the debt limit. They’ll all live to fight another day on the other stuff. Until next week, here’s to good planning!