re: #140 McSpiff

Well yes, this is “just” another sovereign default, I’m not sure we’ve ever seen anything like this… Could the rating agencies seriously continue giving US debt a AA rating if there was a default? What happens to the various institutional investors, reserve requirements, etc that depends on US Government debt never defaulting. What happens if people decide their banks are insolvent and the FDIC can’t borrow against the Treasury?

If the US defaults on its debt, the NRSROs (Nationally Recognized Statistical Rating Organizations) would have to significantly downgrade US sovereign ratings. A “BB” rating would not be out of the question, if the situation persists and the debt ceiling remains insufficient to repay or service debt.

That said, IIRC in the event the debt ceiling is not raised, the real effect would be on the ability of the government to meet domestic mandated expenditures, as the priority for Treasury fund is to service debt first, and there is enough tax income to do so. And maturing debt would be rolled over (albeit likely at higher interest rates) under the current ceiling. But Medicare, SS, salaries, etc. would no longer be covered by the remaining available funds. This would lead to severe domestic issues, while leaving the global investing community alarmed, but not unpaid.

As I stated earlier, this is a very complex issue, but not a terribly complicated one.