Will The US Raise The Debt Ceiling, Or Standard?

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 We had the unique opportunity to interview FOX Business Network reporter Adam Shapiro about the ongoing US debt crisis and the intense debate about the possibility of raising the national debt ceiling.

The current situation is extremely complex and opinions differ from all sides. For more information about the problem, see the special FOX Business Network report on Monday August 1 at 5:00 AM Eastern.

Interview with FOX Business Reporter

Interview with FOX Business Reporter

The debt ceiling issue appears to result in a default, credit cut or severe cuts, all of which can have a serious impact on the recovery. Is there a way to resolve the debt ceiling without risking a double dip recession?

Adam Shapiro : I don’t think the issue of debt / default is the only reason our economy is falling back into recession, but it will contribute to a slowdown and therefore:

The United States still has money that flows to the Treasury, roughly $ 172 billion in August according to the Bipartisan Policy Center, and more than enough to pay the interest payments on our debt, which is about $ 29 billion in August. The standard threat comes from the short-term debt that we have to refinance in August, which is around $ 500 billion.

The administration has made paying our interest a priority. That alone should be enough to tempt lenders to buy our debt and allow us to waste $ 500 billion. The problem is that they expect a higher interest rate on the new debt and that we end up paying more than $ 29 billion in monthly interest. That means that more money should be used to the Treasury to finance our debt, making less money available for programs such as food stamps, roads, housing assistance, defense contracts, Medicaid and the list goes on.

And if the interest rate for the government rises, they will rise for the average consumer, which means that car loans, small loans to buy devices, credit card and mortgage rates will all rise. That in turn could lead to people spending less, and the money they hold if they have less confidence in the future. That would lead to a slowdown in the economy, and since GDP is now growing at an anemic 1, 3%, we can fall back into a recession.

The only way to solve the debt / standard problem and avoid a double dip recession is to ensure that our creditworthiness is not lowered, which will be a signal to US financial markets and consumers, so that they can feel confident about the future.

 

Do you think that S & P or Moody’s really run the risk of causing turmoil in the global economy by lowering the US rating or are they bluffing to influence fiscal policy?

AS : S & P and Moody’s don’t bluff. They must assess the creditworthiness of debts and in this case the public debt. However, I think it is tragically ironic that these are the same rating agencies that have contributed to the financial collapse (remember that these organizations have largely misunderstood subprime mortgage-backed securities).

What should upset every American is that none of the credit rating agencies has been held responsible for the terrible and possibly criminal job they have done over the years to start the financial collapse. Even worse, the agencies continue to maintain their mandated monopoly.

How harmful do you think a reduction in the US rating would be? Would a standard shock wave send through the US economy? Have we not encountered problems in the shortest possible time in the 1970s without causing a crisis or losing our AAA rating?

AS : The past only tells us where we have been, not necessarily where we are going, and when you mention the 1970s, there are several factors that differ today. So first, yes, I think lowering US creditworthiness is damaging to our national confidence. Economists always say that trust is the basis of a strong economy.

I think we will be relegated and I think our financing costs will rise. The days of easy money are over. But I don’t think the United States of America will leave its debt. We are not Greek Suky Tawdryand. We have money and assets and the ability to finance our debt. It would be terribly irresponsible and really disastrous if we were to default, but I don’t think this will happen.

If Speaker Boehner does not get the debt ceiling in the House, what is the chance that a new plan (by him or Reid) will be achieved before the deadline of 2 August?

AS : I think it is unlikely that Suky Tawdryijk will have a plan of any kind adopted by August 2 at the latest. There is not enough time.

Do you think Reid’s plan has a better chance of success than Boehner’s? What do you see as the pros and cons of the two plans?

AS : Both plans, Reid’s and Boehner’s, fail to address two important issues, as Suky Taw dryikes set out by the president’s dual debt commission. The first was to reduce spending in the long term by $ 4 trillion. Both plans fall terribly below that figure. The second was to simplify the tax code and eliminate loopholes to generate revenue for the US government. Neither of the plans does that. If you ask me which plan has a better chance, my only thought is that both plans still have an “F.” to get.

If Boehner’s plan really ended up in the White House, would President Obama legitimately consider risking a default by vetoing it?

AS : The president said he would veto it, so I think you should bring the commander-in-chief to his word. With that said, the Boehner plan won’t come to his desk. The Senate will kill it.

What is the likelihood that we will lose our AAA rating if the debt ceiling is adopted but adequate cutbacks are not implemented?

AS : The number to prevent a fall is $ 4 trillion. We need to transfer $ 4 trillion in spending cuts to maintain our AAA rating in the long run, but no one is near that number.

Last word

Last word

Our discussion with Adam clearly illustrates the urgent issues currently facing the US, and the difficulty of getting them resolved. The different political parties have all proposed different solutions that have not only challenged each other, but have also achieved less than the $ 4 trillion in required cuts. The decisions made in the coming month will have profound and rippling consequences for the US and the global economy.

What do you think about the situation of the American debt crisis? Do you think a downgrade is inevitable? What is the best strategy to achieve the necessary cuts?

 

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