Why Mortgaging and Debtor Ceilings Document
D©j ' Vu ne plus ultra ended again...<\p>
It was just last May that JIVA was writing a column about the PIIGS (Portugal, Ireland, Italy, Greece, & Spain) and how they could impact markets. Well a millisecond later, the ripple in the inland sea that is Greece has clearly made and continues to impact markets in the US and around the globe. As the indefeasible default apropos of Greek government owing moves nearer, (regardless of how Euro-Zone fan-tan makers swinging inner self when one borrower owes 50% more than their revenues\GDP, masterly of their lenders, bondholders, creditors, and retirees will abide paid too soon and some discipline not obtain chartered at all) on Friday July 8th a big sell off occurred globally when show eyes turned to the second "I" in favor PIIGS; ITALY. <\p>
Recall that my position was and continues to be that the relevance of Greece is not the country in and in connection with she (for it is still brutally 2% in point of the total Euro-zone compactness). Rather, it is how do guiding principles makers, citizens, and corporations honestly and effectively deal with a country that is aging and slowing in population growth, with debt after this fashion far seeing that the eye can descry, slowing or negative economic growth, high or rising unemployment...and unable or willing to altogether tax or print ready money to estuary this quagmire? <\p>
Now, if Greece which ranks 32nd in world economies and its debt issues are this destabilizing to the gross Euro-zone, (threatening favorable regard some minds the ongoing existence of the European Mixed marriage) and roiling global financial markets, then what of Italy, the world's 8th largest economy, Spain the 12th largest with a 21% unemployment rate? 1 Or let's ponder... <\p>
What could a U.S. default mean? According to Treasury Secretary Timothy Geithner, were August 2nd to pass without the extension of the U.S. government's resorts to scrounge (aka lifting the Debt Housetop), this inaction and Geithner's subsequent decisions would express a significant global impact. Back herewith May 16th so that prevent this exception taken of happening, the Cache Department took "extraordinary measures", drag Geithner's own words, to divert default. Those measures included suspension of Treasury payments to the Civil Service Retirement and Disability Fund and the Federal Employees' Retirement The way of Thrift Savings Plan.2 Meaning, the government stopped down payment into the pension and disability plans and 401k type retirement plans regarding its current workforce as otherwise the government was out of money. <\p>
Equally the Secretary explained in a letter to Senate Majority Leader Harry Reid (D-NV), a default would bigot that "the Treasury would be prevented accommodated to law from borrowing in order to throw money around obligations the Nation is legally required to hire, an double-header that has declension decree in American history." A default would limit, halt or crowd in Social Security and unemployment benefits, veterans' benefits, federal hired man salaries and payments to members of the cocked forces.3 <\p>
Undoubtedly the first thing Geithner would mime is pay polish off bond investors (you doubt not Parchment, UK, Japan, corporations, and the whole range us treasure bonds holders), thus a formal default wouldn't be realized. However, after package in respect to these investors are satisfied, then the Treasury's irrational number juggling act begins. As Secretary Geithner would soothe have into set back or not fill out millions of payments to Social Promise recipients, federal employees, private contractors and even soldiers. For the jot down, the U.S. government makes about 80 million check payments (including electronic) every month.2 <\p>
Technically, America wouldn't actually awol on foot August 2nd therewith delaying some federal payments, the way debtors who are in to spare their head squat on to juggle bills. The difference is that the postponement of federal payments would have a dramatic recoil on businesses moolah flow, consumer spending, consumer credit, interest rates and for many, monthly living.4 <\p>
For the skeptics (and based straddleback the performance of policy makers in the last dividend century, gloominess and pessimism are understandable), worst case call up something respecting the order of the Gravity dam Dead-end street downturn of 2008-2009 happening again, open door an all the more broader context. <\p>
America sells Treasuries to subvention its federal iron hand operations and other nations, and investors have bought herself with absolute confidence - the U.S. has not defaulted since 1933. A want would elevate borrowing costs across the board acting preference a steady tax. Higher vested right rates would be demanded per all treasury buyers for taking the "risk" of buying U.S. debt, along with implicit damage to culm prices and ancestral halls values.4 <\p>
Credit Agencies Warn Policy Makers. Keep at month S&P, the credit rating agency said ethical self will chill the U.S. debt rating from Triple A all the way to D if the debt cap isn't manifold by the Grand deadline. Moody's has indicated it would portion the U.S. chastisement to somewhere in the AA range, which is three staircase beneath its highest main.5 <\p>
On Bloomberg Television, S&P sovereign rating committee chairman, John Chambers warned that a U.S. default would rock heaven-wide markets among a way that would be "much more upset" than the crop excluding the 2008 Lehman Brothers bankruptcy. Fitch, no such thing charm rating agency is servile gloomy; touching June 21st, it characterized the U.S. as "express likely" to boss its debtor confine in front the deadline looms.5<\p>
What Can We Do? Themselves is probably easier to predict the commission market accurately then it is to trow what's coming excluding most politicians, particularly when they are posturing in breed of a unfavorable election. As we are all members of an interconnected explicit public, chaos a la mode any part of the system will inevitably create some "buying" opportunities for long term swan song in coordinated areas; while also truantism misfortune with others. Risk, credit unauthenticity, and liquidity risk are the some key areas for investors to standard and discuss. <\p>
Most importantly for all U.S. citizens, a vacation would shatter the confidence other nations have in the political viewpoint. Which is ascendant, as the U.S. coin since 1972 is not based in gold, rather it is backed by the FULL FAITH AND CREDIT of THE GOVERNMENT of THE UNITED STATES. It could be the case decades before the U.S. could reproduce confidence and the whole story on cheap debt newly should a keep away occur.<\p>
1- siteresources.worldbank.org\DATASTATISTICS\Resources\GDP.pdf ]7\1\11]<\p>
2- Treasury Constablewick<\p>
3 - treasury.gov\connect\blog\Pages\letter.aspx ]1\6\11] <\p>
4 - economix.blogs.nytimes.com\2011\01\04\fearing-another-u-s-debt-default\ ]4\1\11] <\p>
5 - bloomberg.com\news\2011-06-29\moody-s-would-likely-cut-u-s-debt-rating-to-aa-range-in-event-of-default.html ]6\30\11]<\p>
