Republicans in the American government are backing a debt-default plan to reduce the country’s projected US$1.4 trillion deficit. Going ahead with the debt-default plan would mean potentially destabilizing the economy and worsening relations with foreign creditors like China. China, the largest foreign creditor, holds over US$1 trillion in Treasury debt. Some information regarding the debt-default plan includes:
- Going into default could weaken the US dollar.
- A debt-default would mean delaying interest payments for a few days.
- The US Treasury Department believes there will be no more room to borrow by the beginning of this August.
- The US Congress is against increasing government spending.
- If the US were to default on their payments, it could create a global reaction.
- If interest payments aren’t made the economy could be pushed back into a full-blown recession.
- Republicans believe foreign creditors would be content with a default if it means a better chance of paying government debts off later on.
- US Treasury debt is still one of the safest forms of liquid investments.
For the full story, read this article in the Financial Post.
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