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Global Impacts of the US Debt Ceiling Crisis

Amidst the US Federal government shutdown now it’s in 8th day and the debt ceiling deadline only 9 days away, it’s no shock that investors anticipating a potential default by the US government are exiting from the US Treasuries.  Seasoned investors already panicked were not comforted by the US Treasury Secretary’s statement warning that as of October 17, 2013 the Treasury may not be able to pay interests and coupons on its bonds.  Is derailing ObamaCare so necessary as to throw the entire world market into calamity? 

Equity Markets and the Global Community React 

  • The Dow  and S&P 500 are at their lowest levels in one month. 
  • Puerto Rico which has over $70 billion in debt and more than 600 muni bonds outstanding.  
  • China and Japan – the 2 largest US creditors holding $2.5 trillion in US Treasury bonds.  China issued a warning stating it was the responsibility of the US “to safeguard the debt as it is of vital importance to the economy of the US and the world.”  Japan equally concerned has held several emergency phone conferences with the US Treasury as this debt ceiling crisis is at a pivotal point in Japan’s economic recovery after decades of stagnation. 
  • Mexico’s economy is heavily intertwined with the US and impacts would be devastating as the country is recovering and rebuilding from natural disaster.  
  • The President of the World Bank issued that the effects of a default would be “really severe” as it could unnerve stock market , a sentiment echoed by the IMF. (see attached image)