S&P 500
If in the case the US fails to meet its debt obligations, it will be a catastrophic event not just for the US economy but for the global economy as well. With countries like China ($1.3Tln holder) and Japan ($1.1Tln holder) that have heavily invested in the US national debt are greatly concerned.
The US government is scheduled to pay debt service , social security benefits, medicare, military payments and according to Lew the treasury has $30Bln of cash left by Oct 17th to meet these commitments. The treasury will need to borrow more to meet its liabilities or severely contract its spending which would in turn negatively impact the GDP. This event would create a liquidity issue leading to a credit crunch where banks would have to write down securities on their books that are losing value and face capital shortfalls. And this time around the government wouldn't have the cash to rescue the banks.
The default could potentially mean that Interest rates including mortgage rates would skyrocket, credit spreads would widen, the US dollar would severely devalue and household consumption would dramatically fall. With borrowing costs increasing, US company's earnings would start to diminish and hence the S&P 500 index would lose ground. In my view the S&P could reach to 1600 or below if the default happens.
If in the case the US fails to meet its debt obligations, it will be a catastrophic event not just for the US economy but for the global economy as well. With countries like China ($1.3Tln holder) and Japan ($1.1Tln holder) that have heavily invested in the US national debt are greatly concerned. The US government is scheduled to pay debt service , social security benefits, medicare, military payments and according to Lew the treasury has $30Bln of cash left by Oct 17th to meet these commitments. The treasury will need to borrow more to meet its liabilities or severely contract its spending which would in turn negatively impact the GDP. This event would create a liquidity issue leading to a credit crunch where banks would have to write down securities on their books that are losing value and face capital shortfalls. And this time around the government wouldn't have the cash to rescue the banks.
The default could potentially mean that Interest rates including mortgage rates would skyrocket, credit spreads would widen, the US dollar would severely devalue and household consumption would dramatically fall. With borrowing costs increasing, US company's earnings would start to diminish and hence the S&P 500 index would lose ground. In my view the S&P could reach to 1600 or below if the default happens.
No comments:
Post a Comment