by Stephen McPhie, CA
Partner, RSD Solutions Inc.
So Greece, Portugal, et al get a bit of a holiday from the attention of the world’s media. Their fates are not really in their own hands. However attention has shifted for now to the U.S. whose fate is still largely in its own hands.
The rest of the world looks on askance at the inability of dogmatic politicians to compromise on an issue that could fundamentally harm their own country and many of its citizens. The possibility of it harming other countries is likely of little or no concern to them.
Most of us think that we elect politicians to try to solve problems rather than creating them by petty squabbles amongst themselves. And for those who think there is some sort of principal involved and that they are not petty squabbles, the possible consequences make the squabbles seem very petty in comparison.
How exactly would a U.S. default pan out? Let’s hope we don’t find out. Will the markets see it as a temporary technical factor? Will chaos ensue? Perhaps it partly depends on which bills are not paid and how long it lasts. However a downgrade has its own consequences, depending partly on how much of a downgrade. Higher interest rates increase government spending for example. And some investment institutions have investment limits for certain ratings. A loss of rock solid trust, which may already be happening, can have far reaching consequences.
In the vein of associations the U.S. shares with countries we formerly associated with ratings downgrades and sovereign default, I believe that a banana can grow in the U.S. (in Hawaii).
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