"A chorus of global banks has warned that Washington risks triggering a global slump and may suffer permanent loss of credibility by flirting with default on America's $14.3 trillion (£8.8 trillion) federal debt"
"It is almost unthinkable to believe the US would miss a coupon payment [$29bn are due on August 15]. If the US does default, the repo market would probably cease to work. It is hard to imagine money market funds operating under this scenario. The inter-bank market would freeze up. The fallout would be far worse than after Lehman's default," he said. "It would be horrible to think what happens to the dollar if the Fed hints it would offset the growth damage with QE3."
Mr Garthwaite said it might not be that much better if the US fails to lift the debt ceiling and enacts a draconian fiscal squeeze equal to 11pc of GDP (annualised) to stave off default.
Such an outcome would at first lead to a 10pc to 15pc drop in equities and a fall in 10-year Treasury yields to 2.75pc. The dollar would slide. The longer it went on, the worse it would be. Each month would mean fiscal tightening equal to 0.9pc of GDP"................READ MORE
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