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Give the incompetence of this Congress and this White House, it's most likely that the debt ceiling will not be raised and our country will default on its debt. This will mean the end of the supposedly recovering economy and the beginning of a new, perhaps severe recession. In your opinion, what will this recession look like and how long will it last? Will it be a recession along the lines of the early '90s S&L recession, the 2008 financial crisis, the Great Depression, or even worse?
Yes, there will (someday) be another recession. No, it will not be caused by failure to raise the debt limit, because one way or another the debt limit will be raised.
Furthermore, even if the debt limit were not to be raised, the US would not "default on its debts" - i.e., stop paying interest on existing government debts. The money supply would be increased short term to allow continued payments on such debts, until a political solution was found.
Give the incompetence of this Congress and this White House, it's most likely that the debt ceiling will not be raised and our country will default on its debt. This will mean the end of the supposedly recovering economy and the beginning of a new, perhaps severe recession. In your opinion, what will this recession look like and how long will it last? Will it be a recession along the lines of the early '90s S&L recession, the 2008 financial crisis, the Great Depression, or even worse?
There was a debt ceiling debacle in 2011. You had a decent-sized stock market correction that summer, and wee bit of a slowdown in economic activity, and that was it. This time is unlikely to be any different.
Debt ceiling issues can cause major calamity. There were rumbles of our credit rating being dropped last time and with GDP growth still anemic and debt growth still accelerating it is very likely that something is going to come up sooner rather than later.
So the idea that such a battle would have no potential impact is foolish. Recession is unlikely simply on its own but there are other indicators creeping up that show there is trouble in paradise. Savings rate is dropping indicating that people are having to dip into already anemic savings to keep up, cars are seeing falling demand, wage growth has been non existent and you have housing and the market on a tear with valuations getting quite high.
So it really doesn't take much to see how the dots could connect and create a major problem. People are aware that the market is over due for a correction, time that with some bad news on GDP, retail sales or a credit down grade and the glass will be half empty before you know it.
The scary thing about this go around is rates are already really low and the goverment simply can't spend spend spend with the way our current debt is accelerating.
That leaves very few tools to pull us out so when it does come, it is likely to stick around. We've squandered one of the richest economic times in history and have nothing but debt and crumbling infrastructure to show for it. I think history will judge the last 30 years or so quite poorly when it is all said and done.
Debt ceiling issues can cause major calamity. There were rumbles of our credit rating being dropped last time...
Rumbles? Is that another ZeroHedge reference? And what calamity did the S&P downgrade of August 2011 have? Back in the real world, yields on US Treasuries DECLINED in the days following that event, as even when cracker-barrel clowns temporarily hold political sway, the US economy remains the strongest in the world, and US debt remains the zero-credit-risk standard by which the safety and security of everything else is measured.
Yes, there will (someday) be another recession. No, it will not be caused by failure to raise the debt limit, because one way or another the debt limit will be raised.
Furthermore, even if the debt limit were not to be raised, the US would not "default on its debts" - i.e., stop paying interest on existing government debts. The money supply would be increased short term to allow continued payments on such debts, until a political solution was found.
I expect Congress to do the not moronic thing and raise the debt ceiling with a clean, bipartisan bill. However, were they to fail, then Treasury would not be permitted to borrow money to service US debt. There is an actual date where Treasury runs out of cash, and if that happens, then we would be getting ready for something weird--unprecedented and strange activity in the currency markets, financial markets, and beyond.
Quote:
Originally Posted by aridon
Eh.
Debt ceiling issues can cause major calamity. There were rumbles of our credit rating being dropped last time and with GDP growth still anemic and debt growth still accelerating it is very likely that something is going to come up sooner rather than later.
So the idea that such a battle would have no potential impact is foolish. Recession is unlikely simply on its own but there are other indicators creeping up that show there is trouble in paradise. Savings rate is dropping indicating that people are having to dip into already anemic savings to keep up, cars are seeing falling demand, wage growth has been non existent and you have housing and the market on a tear with valuations getting quite high.
So it really doesn't take much to see how the dots could connect and create a major problem. People are aware that the market is over due for a correction, time that with some bad news on GDP, retail sales or a credit down grade and the glass will be half empty before you know it.
The scary thing about this go around is rates are already really low and the goverment simply can't spend spend spend with the way our current debt is accelerating.
That leaves very few tools to pull us out so when it does come, it is likely to stick around. We've squandered one of the richest economic times in history and have nothing but debt and crumbling infrastructure to show for it. I think history will judge the last 30 years or so quite poorly when it is all said and done.
The US credit rating was dropped by one of the 3 ratings agencies when we ran into political roadblocks to raising the debt ceiling. If it were dropped by another ratings agency, then many investment vehicles would be forced to revisit their holding of US treasuries, as they are only allowed to hold the highest-grade debt. There is some risk that there would thus be a run on treasuries, which would not be good.
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