Debt Ceiling Inaction Will Double Interest Rates and Crash Stock Market in 2011
President Obama’s administration is pushing to raise the nation’s debt limit an additional $2 trillion, which currently stands at $14.3 trillion and issued dire warnings from business leaders that failing to OK the increase will lead to inflation, an immediate doubling of “Interest Rates” and a killer “Wall Street Crash” — House Speaker John Boehner, R-Ohio, says the GOP will demand trillions in spending cuts before considering an increase in the debt ceiling.
Some Wall Street executives are quoted as saying “Interest rates would spike, S&P and Moody’s would downgrade U.S. debt — raising the price of borrowing and there would be a market sell-off which would be a disaster” if they don’t increase the debt.
OK, what will happen if the debt ceiling isn’t increased?
— Inflation could jump, though no percentage growth estimates have been provided.
— Interest rates could double if U.S. debt is downgraded — “Home Loans“, for example, that are now below 5 percent, could surge to 9-10 percent, killing any chance of fixing the “Housing Crash” or cutting the unemployment rate, which now stands at 9 percent.
— The stock market could suffer a 10 percent drop, far more significant than the 778 point beating Wall Street took when the House rejected the government’s $700 billion bank bailout plan in September 2008.
“That market sell-off will look small compared to what we’ll see,” said a Wall Street executive.
Not everyone is buying a worst-case scenario. The New York Times reports many Republicans dismiss warnings of an “Economic Crisis” and say the government could maintain the confidence of investors by prioritizing interest payments.
Tags: Debt Ceiling, Debt Limit, Economic Crisis, Government, Government Bailout, Home Loans, Housing Crash, Interest Payments, Interest Rates, Investors, Market Sell-Off, Moodys, President Obama, S&P, Standard and Poors, Wall Street, Wall Street Crash, Wall Street Executives