Nearly a third of Americans don't think the debt battle and shutdown will affect their lives
Despite the high drama surrounding the current federal government shutdown and debt ceiling negotiations, a recent credit.com poll showed that about 30 percent of Amercians are not really concerned about any fallout affecting their personal lives.
Rana Foroohar of Time Magazine recently blogged about why that apathy is misplaced and that this budget showdown could have enormous consequences for the average American. Foroohar begins by pointing out that part of what allows ordinary Americans to finance and buy a second TV is because “the credit of the United States is good.” This allows “the dollar to be kept high”, ensure “growth prospects” and keep “borrowing costs lower than debt levels.” Like any other situation in life, once that trust is eroded or gone via default, it could be years (or perhaps never) to recover.
Some examples of worrying trends include the fact that there was a recent hike in the interest on US Treasury bills. A hike in the interest rate means the credit market is starting to wonder about the full faith and credit of the United States. Similarly the amount of Treasury Bills being bought by foreign investors and nations is slowing down. If that slow down continues then the current low interest rates will have to go up. Finally, the reason the market has not punished reckless federal behavior in recent years is because the Asian market was slowing down and Europe was imploding. By default, the United States emerged as the loveliest house on a lot full of ugly houses. That situation is not bound to remain forever. If the United States does not get its house in order and another emerges, that could lead to a dicey financial situation.
American CEOs are certainly part uneasy about the American political/economic situation. According to Michael Purves, the chief global strategist of institutional dealer/broker of Weeden and Company, this loss of CEO confidence will likely translate into “lower capital spending for the rest of this year.” This combined with people “tightening their wallets” and “lower consumer confidence” and the nation will struggle to make 2 percent GDP growth yet again.
Finally, as it relates to the average American, if a debt default were to occur, Ms. Faroohar predicts that the United States credit score would “immediately get downgraded” which would result in a 13 percent drop in stocks and hundreds of billions in “outflow” as investors panic and try to salvage their investments. All of this will be felt by ordinary citizens and their daily lives.