US Could Default On Debt Payments

Last modified on September 28th, 2013

I’m scheduling this post for when I’m out tomorrow for a while, so it’s possible the US may find some common ground on the current US debt negotiations. I don’t it though.

Right now things aren’t looking very good for the United States, and the time is almost out where a solution can be reached and implemented before the debt ceiling expires. Negotiations continue to stall, and both sides seem unwilling to deal with some of the harder issues, like coming up with a long term financial strategy that will reduce the deficit and the debt.

I actually thought there was only about a 10% chance that the US might default previously, but I’d say we’re probably looking at 50/50 right now. Either way, I think the ratings agencies should severely punish the US for the state it is in. What use is there in waiting until after a default to downgrade the credit worthiness from AAA (basically almost no risk of default) to something lower?

It’s clear based on what’s going on in Congress and with the back room negotiations that the US is in serious trouble with regards to both its deficit and debt. The definition for AAA is: AAA bonds are thought to have virtually no risk of default. I think it’s pretty clear that there’s a risk of default at this point, so the ratings need to be lowered accordingly. Not doing so just reaffirms everyones’ beliefs that the rating agencies are just as worthless today as they were during the 2008 financial crisis.

There’s only about another week left to sort this out. If they can’t come to a reasonable solution, the US market and the US dollar are going to get clobbered.