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New IMF Head Says US Must Raise Debt Limit, or Face 'Nasty Consequences'
fysdt writes with this from an article on ABC News: "The International Monetary Fund's new chief foresees 'real nasty consequences' for the U.S. and global economies if the U.S. fails to raise its borrowing limit. Christine Lagarde, the first woman to head the lending institution, said in an interview broadcast Sunday that it would cause interest rates to rise and stock markets to fall. That would threaten an important IMF goal, which is preserving stability in the world economy, she said. The U.S. borrowing limit is $14.3 trillion. Obama administration officials say the U.S. would begin to default without an agreement by Aug. 2."
It's not the banks.
It's government debt, eg bonds. Greece's interest rate is like 28%, The US is 2%. Greece's economy has basically gone titsup without default, but they're still expected to default. All the countries that are in trouble their bond rate skyrockets as soon as it looks like the bonds are going to be worthless.
What does the government do with money? It pays government employees (Miltary, Entitlement programs, infrastructure and creditors.) Creditors are other countries/people/businesses, both domestic and foreign. If the US defaults, expect the equivalent of a bank-run on bonds and stocks (equities) to get their money out of the US and into safer places like... Japan or Canada (even if it's only for a short period of time.) Take a look at the price of most of the S&P 500 1 minute before and after the jobs report last friday. So many stocks dropped by 10% for several hours before picking back up, now multiply that in a downward trend, that is what will happen.
Publicly traded companies with stocks worth less than 5$ get delisted, and that means those companies are toast. Companies that are private and those that have physical assets like Apple might survive, but a lot of the service industry does not have physical assets and they are history if the US government defaults. The irony here is that the banks would survive, but they would be calling in their loans, which means 30% interest for you.
Yes it can be doom and gloom, but it's inconceivable that the debt limit doesn't get raised. If by some chance the politicians screw the pooch and don't get it lifted, every last one of them better not be re-elected.
It's not the goal of Tea Party Republicans to get re-elected. The majority of them are operatives for the Tea Party, which is controlled by militia operatives. They want to overthrow the US government itself even if it means launching a civil war.
They are deliberately trying to create an economic crisis because that is the best way to trigger a civil war. They already have the guns, they have the organization(militias) built up, they are ready. The sad thing is most American citizens aren't ready for it or don't want it. But when enough American citizens lose their careers, their jobs, and have no government benefits whatsoever to count on, no unemployment, no welfare, no food stamps, no anything, then the militias can give them one last job.
It's a recruitment tactic. The US government uses the same tactic of sanctions when it wants to overthrow a dictator. It's also because the Tea Party militias are tired of funding the government which is trying to investigate and crush them despite the fact that they've infiltrated the US government and control many politicians, there are still FBI agents who want to crush the Tea Part movement or any extremist movement that seeks to violently overthrow the government or cause a civil war.