This is going to be the next big economic news story, given that the next US Treasury auction on Monday WILL exceed the US statutory gov't debt limit ...
(snip)"we turn to Reuters which brings us news of a "report" by centrist think tank Third Wave, due out on Monday, which finds that "the United States could plunge back into recession if inaction in Washington forced a debt default, according to a new analysis that arrives as the country reaches the legal limits of its borrowing authority....Some 640,000 U.S. jobs would vanish, the housing market's woes would deepen, stocks would fall and lending activity would tighten if the country were unable to pay its bills, according to a report by the centrist think tank Third Way due out on Monday." And yes, first Dow Jones and now Reuters confirms what we have been warning all this week, namely that "the Treasury Department is expected to hit its $14.3 trillion borrowing limit on Monday, making it unable to access the bond markets again. Lawmakers from both parties say they won't approve a further increase in borrowing authority without steps to keep debt under control."
Yet back to the topic at hand: which is that someone actually paid money to discover what will happen to America when it filed for bankruptcy. If this was a paper out of the San Fran Fed we understand, but private industry? If there is one margin hike we approve of it is for the CME to hike the margin to 1000% cash in trivial common sense BS.
And for those who don't have blood shooting out of their eye sockets at this point, here are the details of what the debtors prison circle of hell would look like for the US.
•Treasury bonds would lose their aura of safety, leading to a half-point increase in their interest rates. That would push up the U.S. government borrowing cost once lending activity resumed, leading to a $10 billion increase in annual budget deficits over the short term.
•The higher interest rates would ripple through the economy, causing gross domestic product to decrease by 1 percent and employers to shed 640,000 jobs.
•Banks would curtail lending. Small businesses would have a harder time expanding and credit-card interest rates would rise. Student loans and car loans would become more expensive.
•The S&P 500 stock index would lose 6.3 percent in value over three months, causing retirement portfolios to shrink, the report said, citing research by financial services firm Janney Montgomery Scott.
•The U.S. dollar's status as the world's reserve currency could be threatened as investors move cash to Swiss francs, Japanese yen, or Euros. That could boost U.S. exports but raise the cost of consumer goods like gasoline and electronics.
•Home mortgage rates, which are tied to U.S. Treasury rates, would rise. Homebuyers taking out an average mortgage for a new home, currently $221,900, would pay an extra $24,738 over the life of the loan, dealing another blow to an already struggling housing market.
"Defaulting on our debt is not an abstract idea that might affect a few institutions on Wall Street; it would harm tens of millions of Americans in profound and lasting ways," the report says.(snip)
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Obviously, without authorization of a higher US gov't debt limit, things could get 'interesting' going forward. Admittedly, watching these 'interesting' events from Switzerland or Japan or an EU country is likely to be far more 'comfortable' than watching them from the US !
Reviewing basics here, for the past 2 years the USA has been 'printing money out of nowhere' to maintain gov't spending levels that vastly exceed levels of actual tax revenues. While such money printing is usually highly inflationary, the USA has been able to hold down inflationary effects by printing up shiny new US gov't bonds and selling them to foreign investors or the US fed ( thus effectively taking the newly printed US dollars out of general circulation for the 3-7-10-20 year life of those bonds ). However, once the gov'ts debt limit is hit, sale of additional shiny new US gov't bonds will no longer be possible. This in turn will cause any newly printed US dollars to then directly and immediately enter general circulation ... with direct and immediate inflationary effects on US dollar denominated prices of 'world market' goods as well as higher US dollar denominated interest rates. The resulting higher 'input costs' and higher borrowing costs for US businesses and individuals alike will quickly bring on another recession ( based on the assumption that the last recession ever actually ended ! )
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