U.S. Debt Default Not the End of the World

Eagle Eye Opener

[U.S. Capitol]
Jason Ippolito
U.S. Debt Default Not the End of the World (Bloomberg)

Despite what doomsayers might have you believe, should the United States be unable to extend its debt ceiling beyond the Oct. 17 deadline, the global debt market would not grind to a halt. Given enough advanced warning from the U.S. government about which securities will be affected, the negative impact of a default could be considerably softened. For example, on Oct. 17, the United States has $120 billion of Treasury bills maturing. But as long as the U.S. Treasury uses its Federal Reserve Fedwire service to delay coupon or principal payments, defaulted debt still can be transferred and used as collateral in transactions. Of course, at some later point, that payment will either have to be made or cancelled, but by that time, it’s an investor’s hope that the debt ceiling will have been extended.

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U.S. stocks rebounded today and lifted the Standard & Poor’s 500 Index less than 1 percent from a record high, amid signs lawmakers may reach a deal before the government’s borrowing authority is scheduled to end in three days.

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