Sunday, July 24, 2011

Possible Market meltdown holds U.S. feet to fire as default looms


Did somebody say selloff? Reuters reports that Global financial markets have been more than patient throughout this summer's struggle over raising the U.S. debt ceiling. That patience may run out on Monday.

If the notion that the game of "chicken" over the nation's debt is going to end badly takes hold, Treasuries and the dollar could come under heavy selling pressure, driving up interest rates, damaging business confidence, and weakening an already fragile U.S. economy even more. A slide in the bond market could trigger a wave of selling elsewhere, too, with stocks, money market mutual funds and higher risk assets elsewhere in the world all vulnerable as deepening problems in the U.S. would threaten to damage the global economy.

"I'm not sure we're looking at total mayhem yet with the Asian open, but it's possible," warned Christian Cooper, head of U.S. dollar rates derivatives at Jefferies & Co. The next 12 hours are going to be critical. A substantive deal that cuts some $3 trillion to $4 trillion from the deficit over the next 10 years would be met favorably by investors, but that will be tough, if not impossible to reach now.

A two-step plan being pushed by Republicans to give the government enough borrowing authority to make it through the year while lawmakers work on long-term deficit reduction could allay some fears but could still lead to a ratings downgrade. Standard & Poor's has said it might still cut the United States to AA if lawmakers embrace a short-term fix that lifts the debt ceiling but doesn't address long-term fiscal issues….

Read more at http://www.reuters.com/article/2011/07/24/us-usa-debt-breakdown-idUSTRE76N27J20110724

No comments:

Post a Comment