Poll: Will a Technical Default on US Government Debt Do Long-Term Damage to the Global Economy?
Governments traditionally have two policy levers to influence the economy: monetary policy and fiscal policy. Many investors have directed their ire at the unprecedented monetary easing of global central bankers over the last several years, but fiscal policy in both Europe and the United States has proven impotent because of unswerving gridlock. Now there is a potential reckoning for fiscal impotency in the form of a fixed debt ceiling in the United States. Unless the limit on debt issuance is raised soon, the country may experience its first ever intentional debt default.
In a poll conducted earlier this week in the CFA Institute Financial NewsBrief, we asked readers, “Will a technical default on US government debt do long-term damage to the global economy?”
Will a technical default on US government debt do long-term damage to the global economy?
Two-thirds (67%) of 911 respondents said yes. The specific effects that might result from a technical default are highly uncertain, but they would likely include: an increase in borrowing costs, a decline in the US dollar and a decline in global GDP; all large and consequential.
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This ‘technical’ default on US govt debt came at a time when US was starting to show optimism of housing pacing towards normalcy, industrial output surpassing estimates and employment turning greener. The recovery phase has experienced a lag. The probability of an actual default per se seems nil but it has certainly hit US growth significantly and will have a series of side effects translated in terms of dollar weakening and would inevitably have a long term impact on global GDP.