Post by caseagainstfaith on Jul 30, 2011 11:11:46 GMT -5
Will interest rates on mortgages, car loans, student loans and credit cards rise?
Yes. Like any average Joe or Jane who misses a credit card payment, the United States will be socked with higher borrowing costs if it defaults on its debt. If the country loses its coveted triple-A rating, which is expected to happen, the cost to service its debt will probably rise. And that will have a significant ripple effect.
Greg McBride, senior financial analyst at Bankrate.com, says either a ratings downgrade or debt default would result in higher borrowing rates for consumers and businesses alike. "More of a concern is that a prolonged default could cause credit markets to freeze altogether, and we will have real problems," he says.
It's impossible to speculate how much rates will go up, he says. "There are a lot of variables at play. The downgrade will lead to a more modest increase in rates. However, that increase would be permanent." Folks who have variable debt such as a credit card balance or adjustable-rate mortgage can take a little comfort in this: "You are going to see higher interest rates eventually, anyway, because rates are so low," McBride says.
Alas, consumers won't see higher rates on saving products, such as certificates of deposit or money market accounts. "Those products won't improve until loan demand picks up; any downgrade or default will only hold back loan demand," McBride says.
What's the outlook for the U.S. dollar?
Fear that the United States will lose its AAA credit rating or even default on its debt is driving foreigners away from U.S. assets, and the dollar is taking the biggest hit.
Recent trading in currency markets indicates overseas investors have been voting with their feet. They have also been giving short shrift to recent Treasury auctions.
Traders say Asian central banks, among the world's biggest dollar holders, have been steady buyers of alternatives to the dollar such as the Singapore dollar and other Asian currencies as well as the Canadian, Australian and New Zealand dollars. "Foreigners are at the vanguard of the drop in the dollar," says Dan Dorrow, head of research at Faros Trading, a currency broker/dealer in Stamford, Connecticut. "I don't think anyone expects a catastrophic U.S. default. But a downgrade will make them more aggressive in moving away from the dollar."
If global investors lose faith in the dollar, that could weaken its dominant position in global trade and its role as the world's reserve currency. Over time, diminished demand for dollars would make it harder for the United States to finance itself at low interest rates.
The bottom line? It will be more expensive to travel overseas, drink French wine or buy Japanese cars.
Yes. Like any average Joe or Jane who misses a credit card payment, the United States will be socked with higher borrowing costs if it defaults on its debt. If the country loses its coveted triple-A rating, which is expected to happen, the cost to service its debt will probably rise. And that will have a significant ripple effect.
Greg McBride, senior financial analyst at Bankrate.com, says either a ratings downgrade or debt default would result in higher borrowing rates for consumers and businesses alike. "More of a concern is that a prolonged default could cause credit markets to freeze altogether, and we will have real problems," he says.
It's impossible to speculate how much rates will go up, he says. "There are a lot of variables at play. The downgrade will lead to a more modest increase in rates. However, that increase would be permanent." Folks who have variable debt such as a credit card balance or adjustable-rate mortgage can take a little comfort in this: "You are going to see higher interest rates eventually, anyway, because rates are so low," McBride says.
Alas, consumers won't see higher rates on saving products, such as certificates of deposit or money market accounts. "Those products won't improve until loan demand picks up; any downgrade or default will only hold back loan demand," McBride says.
What's the outlook for the U.S. dollar?
Fear that the United States will lose its AAA credit rating or even default on its debt is driving foreigners away from U.S. assets, and the dollar is taking the biggest hit.
Recent trading in currency markets indicates overseas investors have been voting with their feet. They have also been giving short shrift to recent Treasury auctions.
Traders say Asian central banks, among the world's biggest dollar holders, have been steady buyers of alternatives to the dollar such as the Singapore dollar and other Asian currencies as well as the Canadian, Australian and New Zealand dollars. "Foreigners are at the vanguard of the drop in the dollar," says Dan Dorrow, head of research at Faros Trading, a currency broker/dealer in Stamford, Connecticut. "I don't think anyone expects a catastrophic U.S. default. But a downgrade will make them more aggressive in moving away from the dollar."
If global investors lose faith in the dollar, that could weaken its dominant position in global trade and its role as the world's reserve currency. Over time, diminished demand for dollars would make it harder for the United States to finance itself at low interest rates.
The bottom line? It will be more expensive to travel overseas, drink French wine or buy Japanese cars.
All 7 questions and answers - www.reuters.com/article/2011/07/30/us-debtcrisis-whatifs-idUSTRE76S6Z120110730
So in other words default means the middle class will have the final nail in the coffin and no more, and just gets worse from there. Not cool.
