This is a topic I've avoided writing much on because this like everything else dealing with corrupt governments and banking systems both in US and abroad, the laws of physics never apply. Some refer to it like a soap opera with constant twists and turns that never get resolved. Others may refer to these so-called 'crises' as financial "cockteases" where you think the banks and investors are Finally going to get their comeuppance and then thanks to magic, tricks and/or schemes, the baddies win.
But its important to present to readers a different and more comprehensive view of this issue than what one would get watching TV or reading the newspaper.
It's always someone else's fault-- notice that? Everything about this issue is politically manipulated as a means to set both parties' economic platforms for the 2012 election. So if you follow this issue very closely, you're bound to be endlessly frustrated because both parties are putting on a show. Both are completely Owned by Wall Street and since it is not in their interest to see a long term default, it will not happen. That doesn't mean there isn't the possibility of a short term one. And that's where things get dicey.
So with this rhetoric from politicians and powerful people in finance saying terrible things are going to happen if we default-- what do I believe?
Before I answer, I will state my personal view in that this is a contrived crisis. All other times previously, there was a straight Yea or Nay vote on raising the ceiling, it was agreed, then the President signed into law. This time its intentionally and purposely complicated by attaching a bill meant to reduce the National Debt. Let me also state that if it wasn't for politicians using 70million people as 'human shields' by being non-committal about Soc. Sec. and Medicare continuing to be covered, I personally would be against the ceiling being raised and let the banks and investors take the bloodbath they should have been forced to take back in Autumn, 2008.
That is not to say I take the Tea Party platform-- Far Far from it. Any discussion of lowering the National Debt must start with two things simultaneously: dramatic cutbacks in military spending and graduated increases in taxes for those making $2.5 million/yr or more. Notice I didn't say $250k. That may be a lot of $ to some but I don't know too many earning that income with yachts docked in the Caymans.
So, back to the question at hand... what do I believe? For one thing, even if August 2nd passes with no agreement, I expect Geithner to make paying creditors and interest on debt his #1 priority. So none of them will get hurt. It is said that US generates $200billion/month in revenue so it could very easily pay its debts, Soc. Sec, Medicare, welfare, military pay and all other basics to keep the nation from rioting. But it would be forced to cut non-essentials like military operations currently in 6 nations. Odds are, the govt would rather you and I starve, then have to drop one less bomb.
I believe the markets will take a hit at first because Investors are cowards who lack any sort of gender-neutral "manhood" to hold fast and ride financial storms. But once they see the debts are being paid or speculator opportunities on oil or some other precious commodity the world needs for survival, they'll spike back up. (Today the Dow jumped over 200pts based on Nothing but Obama saying there's 'progress' and the price of oil spiking up) So don't worry about Investors-- remember, cockroaches and other bottom feeders can survive anything.
Interest rates will also go up if the ratings agencies go through with their threat to downgrade US credit which will mean it will cost us more to pay back our debts and cost everyone else more to borrow. But there are two plus sides as well.. 1) Your savings rate will increase which means after 3 years of Bernanke keeping it artificially at near zero, it will begin to rise and pay some dividend. 2) Americans are suffocated with debt overall. Buying more things that one really does not need simply because interest is low, is not smart. To be truly free and independent, you have to be free of financial obligations to banks and other creditors..this means a single-minded focus to become debt free.
What will happen to Social Security, Medicare, welfare, food stamps and such? Logic tells me that even in a default all those are safe because the combined affect would cause civil unrest and widespread panic i.e. rioting and looting the likes of which has never been seen in this nation before. Think post-Katrina x 1000. And do scummy, selfish politicians really have the guts to see what would happen if you deprive someone of their Only means of economic subsistence??
That said, if I was dependent on such income or had to take care of someone who was, I'd be saving pennies and making contingency plans to cover my ability to pay for essentials for at least a week or two after the 2nd of August. The reason I am not 100% confident that logic will carry the day is the Tea Party movement are stubborn bastards- they refuse to see taxes raised 1 penny, don't believe the world will end after the 2nd and are willing to see their theory put into practice.
In summary, there's no way to predict truly how this all will play out. Too many egos. Too many agendas. Too many innocent 'human shields' affected by these games. All one can do is not buy anything that isn't essential and put the $ away for emergency use until this debt ceiling charade gets settled in one way or another.
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