From Denny: With no debt ceiling deal in sight, Congress still squabbling and the American public fuming, we are left with contemplating just how damaging it will be to our daily lives if America defaults.
For an economic powerhouse like our country to be downgraded from its AAA rating is humiliating considering our status in the world. How can a country that gives away billions of dollars in foreign aid, finances an endless march of third world governments, no longer be able to pay its bills?
The Great Depression regulations to prevent economic slide abolished by Republicans in the name of unrestrained free trade
We can thank Congress and Big Business for that position. As millions of jobs have run, not walked, out of this country at an alarming rate ever since NAFTA was initiated a few years ago. As a result the American middle class wealth has evaporated.
Americans have fallen on hard times, the likes we have not seen in this country in 70 years. Big Business and the GOP caused the Great Depression then, and, after a 30-year relentless attack to remove all the protections and regulations installed to safeguard against another economic implosion, we find ourselves at the brink yet again.
Investor confidence flagging and fading
Today the stocks fell 200 points. Investors are selling off risky stocks and running away from the U.S. dollar, placing their money into gold - at a record price soaring above $1600. This is the worst decline in a year. The markets are clearly jittery.
"As hours pass and the uncertainty builds, I think the market is starting to price in the potential that we might not have a solution by August 2," the deadline for raising the U.S. debt limit, said Channing Smith, managing director of Capital Advisors Inc. "Confidence in our political system is beginning to fade."
How will a U.S. default affect our wallets?
1 - Imports will cost even more than they already do. A default - and a lowered credit rating as a result - will trigger a sharp sell-off of the dollar so that it loses its value against other currencies. If you think the cost of putting gas in your car is bad now, just hold onto the nearest rock because the financial monster hurricane is on its way if our irresponsible politicians have their way.
Even toys will cost an outrageous amount come the holiday season. Like we manufacture much of anything here in this country any more - which leaves us at the mercy of financial hurricanes like this impending one.
2 - Interest rates will rise sharply and remain high for home mortgages, car loans and student loans for the already beleaguered middle class.
Once we lose our AAA credit rating it means it will cost as much as $100 billion more a year than it already does to finance the federal deficit and debt. Right now our federal government is projected to spend $1.5 trillion more than it takes into the Treasury for this fiscal year. Read that as our government will be forced to be co-dependent on deficit financing for decades to come.
Can you imagine America suddenly in the position of being branded as a financial loser, a "defaulter nation"? For everyone who has ever lost a job and spent months to find a new one understands what it is to use up your savings, retirement funds and reserves.
Then what? After all that, you are then relegated to the ugly place of not being able to meet your debts like credit cards and so the charge offs start. Banks are eager to get those tax write-offs before they start the debt collection harassment of going for the legal-illegal gray zone of two bites at the same apple.
Once you work your way through that maze, maybe by declaring bankruptcy or just defaulting on loans, you are persona non grata for years. When you finally can get a loan, in the best of times, a person is stuck with much higher interest rates and harsher terms than those who have not experienced financial hardship. Our financial system really is not set up to help people recover from unusual financial hardship. The same is true for a country.
That's why our politicians are so utterly clueless. Right now, too many of them involved in the debt talks are profiting from dragging out the talks. How? They are buying shorts on the stock market, betting the Treasury bill will go down in price due to the deadlocked talks. Scummy behavior and still no one goes to jail for this despicable act of holding an entire country hostage just to stuff money into their greedy pockets.
3 - Oh, boy, another Great Recession Threat. Like no one could see this item on the list. The cost of borrowing money for small businesses will get passed on to the retail level where you and I buy our groceries and clothing and gas to fill the gas-guzzling cars too many of us still own. (Because Big Business has been too resistance to get serious about increasing gas mileage to 70 miles per gallon.)
Our economy has slowed down for several months now. Increasing our borrowing costs, whether for the federal government, state, county or city ones too, will end up reducing what we put into the economy as spending. We are looking at a serious credit crunch and the decline in economic growth as two factors to put us into the tail spin of another recession.
If that happens then what? The Federal Reserve would have to hard-chargingly get serious and inject money into the banking system again for the third time. Think about it: if money is getting hoarded and not moving, then the economy is not moving either. That's going to translate into higher unemployment.
4 - Taxpayers will have to pay more in taxes and experience bigger spending cuts.
Once a government defaults it will be difficult to find loans through traditional sources of credit. So, our leaders will have to cut spending anywhere they can find it and then raise taxes to get more money flowing into the Treasury. This will not be a pretty picture as leaders tax the middle class and the poor to continue to fund the wealthy as they have in the Bush Tax Cuts, an outrageous amount of money.
America's foreign creditors are concerned we will return to business as usual of which Washington is so fond. They want to see a credible plan to close the deficit gap, They want to know America will reduce its dependency on deficit financing.
Two of our largest creditors are China and Japan. They are correct when they say that the U.S. "is in danger of losing control of its destiny if we continue to add trillions to the national debt," Whether that will become a reality is questionable. To date, China and Japan have not called in their loans or refused to extend additional credit.
5 - Our global status could topple. For decades America has been viewed by international investors as a safe haven for their money. Even when a debt-limit plan is finalized by these Congressional Bozos - or a more likely Presidential directive from the grown-up in the room - our once sterling credibility as a safe investment may not recover quickly.
The economic folks are talking about some drastic options for us in this situation. Apparently, we can avoid default by going ahead and meeting our debt repayment schedule. Then we do the ugly dance and leave many programs underfunded - like the emergency weather fund to keep people from dying because they could not afford their energy bills.
Of course, for some reason, the business and banking types find it perfectly acceptable to withhold pay for federal employees and sending out Social Security checks. So, the greedy bankers are supposed to get paid while other people can't buy basic groceries? Is this how low America has morally sunk down?
The real question here should be: When are we going to get serious and do business, finance and banking reform after we throw all the crooked and clueless politicians out of office? The American public already understands that capitalism cannot race around unchecked and without some restraint and regulations. How long do we wait to correct this gigantic mess while the greedy among us drag us down the financial abyss?
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