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A U.S. debt default that lasts for more than a couple of days could potentially cause a
financial crash unlike anything that the world has ever seen before:
- stocks would crash,
- bonds would crash,
- interest rates would soar wildly out of control,
- there would be a massive credit crunch, and
- it would cause a derivatives panic that would be absolutely unprecedented,
- and that would just be for starters.
Don’t just take my word for it. Below are the ominous warnings that 10 of the world’s top financial experts are saying will happen if there is an extended U.S. debt default.
So writes Michael Snyder (theeconomiccollapseblog.com) in edited excerpts from his original article* entitled 12 Very Ominous Warnings About What A U.S. Debt Default Would Mean For The Global Economy.
[The following article is presented by Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com and www.munKNEE.com and the FREE Market Intelligence Report newsletter (sample here – register here) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.]
Snyder goes on to say in further edited excerpts:
Because they are so close together, the “government shutdown” and the “debt ceiling deadline” are being confused by many Americans.
a) The “partial government shutdown” that we are experiencing right now is pretty much a non-event (only about 17% of the federal government is actually shut down at the moment and should it continue for many more weeks it would not affect the global economy too much).
b) On the other hand, if the debt ceiling deadline (approximately October 17th) passes without an agreement that would be extremely dangerous – and if the U.S. government is eventually forced to start delaying interest payments on U.S. debt (which could potentially happen as soon as November), that would be absolutely catastrophic…
Don’t take my word for it. Below are the ominous warnings that 12 of the world’s top financial experts are saying will happen if there is an extended U.S. debt default.
#1 Gerald Epstein, a professor of economics at the University of Massachusetts Amherst: “If the US does default, that will make the Lehman Brothers bankruptcy look like a cakewalk”
#2 Tim Bitsberger, a former Treasury official under President George W. Bush: “If we miss an interest payment, that would blow Lehman out of the water”
#3 Peter Tchir, founder of New York-based TF Market Advisors: “Once the system starts to break down related to settlement and payments, then liquidity disappears, as we saw after Lehman”
#4 Bill Isaac, chairman of Cincinnati-based Fifth Third Bancorp: “We can’t even imagine all the things that might happen, just like Henry Paulson couldn’t imagine all the bad things that might happen if he let Lehman go down”
#5 Jim Grant, founder of Grant’s Interest Rate Observer: “Financial markets are all confidence-based. If that confidence is shaken, you have disaster.”
#6 Richard Bove, VP of research at Rafferty Capital Markets: “If they seriously default on the debt, what we’re really talking about is a depression”…
#7 The U.S. Treasury Department: “A default would be unprecedented and has the potential to be catastrophic: credit markets could freeze, the value of the dollar could plummet, U.S. interest rates could skyrocket, the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse”
#8 Goldman Sachs: “We estimate that the fiscal pull-back would amount to 9pc of GDP. If this were allowed to occur, it could lead to a rapid downturn in economic activity if not reversed quickly”
#9 Warren Buffett about the potential of a debt default: “It should be like nuclear bombs, basically too horrible to use”
#10 Bloomberg: “Anyone who remembers the collapse of Lehman Brothers Holdings Inc. little more than five years ago knows what a global financial disaster is. A U.S. government default, just [hours] away if Congress fails to raise the debt ceiling as it now threatens to do, will be an economic calamity like none the world has ever seen.”
A U.S. debt default could be the trigger for the “nightmare scenario” that so many people have been writing about in recent years. In fact, it could greatly accelerate the timetable for the inevitable economic collapse that is coming.
A recent Yahoo article described some of the things that we would likely see in the event of an extended U.S. debt default…A default would upend money markets, destroy bond funds, slam the brakes on lending, cause interest rates to spiral, make our banks insolvent, and deal a blow to our foreign trading partners and creditors around the globe; all of which would throw the U.S. and the world into economic disarray.
…and, of course, stocks would crash big time. Deutsche Bank’s David Bianco believes that if the U.S. government starts missing interest payments on U.S. Treasury bonds, we could see the S&P 500 go down to 850 by the end of the year.
There would be almost immediate panic among ordinary Americans as well. In fact, it is being reported that some banks are taking some dramatic steps to prepare for the possible economic chaos that would result, namely:
- stuffing automatic teller machines with extra cash in preparation for a possible bank run from panicked depositors and
- developing plans to advance funds to customers who rely on Social Security and other government payments that could stop in the event of a default.
Let’s hope that cooler heads will prevail and that a U.S. debt default will be avoided.
[Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.]
*http://theeconomiccollapseblog.com/archives/12-very-ominous-warnings-about-what-a-u-s-debt-default-would-mean-for-the-global-economy (Copyright © 2013 The Economic Collapse)
Related Articles:
1. The Debt Ceiling Concept: It’s Origins & Why It’s Now A Dumb Idea
America was once the world’s model democracy. Now it’s a global laughingstock with a government that can’t keep the lights on and is threatening to renege on its debts. How did this happen? Read More »
Going over the debt ceiling would mean the US government legally can’t pay its bills and would default on the national debt. This would be catastrophic in ways that would make Lehman Bros look like a walk in the park. Read More »
