As Washington gets closer to the August 2nd deadline, the world is keeping a close eye on what could potentially have a disastrous outcome if republicans and democrats can not come to a mutual agreement. The President and Congress have until Tuesday or the US government will be in default. The government will have trouble paying its bills which would have both domestic and international repercussions.
If the congress fails to raise the debt ceiling, this crisis would loom even larger and would affect every American’s pocket book. The financial consequences for consumers would be devastating. If the budget negotiations are not resolve by the deadline, there could be immediate changes in the following areas:
- Mortgage Rates A reduced U.S. credit rating could push up the mortgage rates and would further damage an already volatile housing market. This would certainly make it more difficult for consumers with variable interest rates to make their monthly payments. It would also make it much tougher to purchase new homes which would have an adverse effect on the real estate prices.
- Credit Card Interest Rates This process is quite similar to the mortgage rates. A downgrade in credit standing would increase prime rates which is the basis for variable credit card interest rates. The prime rates are determined by the Federal Reserve and an increase would surely increase variable rates. Due to an already existing credit card problem, this makes it more difficult for shoppers to pay down their monthly balances. When credit cards increase the APR, the changes take place immediately as oppose to other interest rate hikes which need a 45 day notice.
- Loan Interest Rates The US debt crisis is also sure to effect the loan interest rates. When the US defaults on their debt to other nations, government will pay a higher interest rate as a result. This will trickle down to the consumer level. Consequently, the consumers have to pay a higher rate on their car, school (other than Federal student loans which are fixed), and small business loans. This would have a very negative impact on the lending and hinder economic progress.
- Retirement Accounts
A low government credit rating could cause many who invest in the stock market to scramble to adjust to this downgrade. As a result retirement accounts, 401(k) and Roth IRAs could lose value. The stock market has also taken a tumble in the recent weeks in response to the debt situation. The stock prices could fall even more if the matter goes unresolved.
- Job Security and Growth A country in debt crisis could send the economy in to a tail-spin. This would surely affect the job sector and unemployment would soar to new heights while economic growth stalls. The unemployed would have a much tougher time finding jobs and the already employed would have to worry about losing their jobs. No matter which side of the aisle you are on, on thing is clear, we need to deal with this issue head on the resolve as quick as possible. The United States can not afford to take another massive blow to its financial sector. A proper resolution is required.