Sunday, July 10, 2011

debt default 7:01 P.M.

Later today Representative Boehner is meeting with President Obama to discuss the budget negotiations.  Just yesterday Rep. Boehner rejected the idea of a deal that included a large decrease in spending because the deal also included tax increases and the closure of corporate loopholes.  Once again there is gridlock on capital hill.  Republicans refuse any deal that includes tax increases of any kind while democrats dismiss any plan that compromises social security and medicare.  In the meantime, the real pressing matter is the raising of the US debt ceiling.  Without this act, the US would default on its loans that are due August 4, 2011.  A recent article from the Chicago Tribune makes the following comments:
  • "The United States would immediately have its top-notch credit rating slashed to "selective default" if it misses a debt payment on August 4," Standard & Poor's managing director John Chambers told Reuters.
  • "Chambers, who is also the chairman of S&P's sovereign ratings committee, said on Tuesday that U.S. Treasury bills maturing on August 4 would be rated 'D' (the lowest S&P rating) if the government fails to honor them. Unaffected Treasuries would be downgraded as well, but not as sharply", he said.
Downgrading one set of bills would not only affect those bonds, it would lower the US credit rating and would raise interest rates.   Further, the global confidence in the US dollar and treasuries would plummet.  Finally, the US stock market could nose dive, which could hurt corporate balance sheets and lead to higher unemployment.  

Clearly lack of a deal between democrats and republicans would severely damage the economy.  What needs to happen is a compromise.  This compromise would give the democrats the closure of corporate loopholes to increase revenue, but no current increase in the marginal individual tax rates.  In return the democrats must agree to deep spending cuts along with entitlement reform.  Everybody gets something, nobody gets everything which makes everybody unhappy.  However, they have to make this compromise for the good of the american people in the long run.

Lets hope that Rep. Boehner and President Obama make significant progress tonight.

  • Citation: Walter Reuter, and Carol Bishopric. "Exclusive: S&P to Deeply Cut U.S. Ratings If Debt Payment Missed." 30 June 2011. Web. 30 June 2011. <,0,7517135.story>. 

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