With Congress moving like molasses and time running out, more and more Americans are wondering what happens when we hit the debt ceiling.
The short answer is that it would be bad – as in catastrophically, you've-never-seen-anything-like-this-in-your-life bad.
"[It] would be like the financial market equivalent of that Hieronymus Bosch painting of hell," Michael Feroli, chief economist at JP Morgan, told the Washington Post.
Brace yourself, because this is what a default would look like...
Investors have started to hunt for how to prepare for the debt ceiling deadline since U.S. Treasury Secretary Jack Lew put a date on the day the country will hit its borrowing limit.
"If we have insufficient cash on hand, it would be impossible for the United States of America to meet all of its obligations for the first time in history," Lew wrote in a letter to Congress sent Sept. 25, when he noted that Oct. 17 is the day we hit the debt ceiling.
you can take steps to protect yourself...
While the stock markets so far have reacted mildly to the government shutdown, the looming Washington fight over the need to raise the federal debt ceiling could lead to a U.S. debt default.
And that, everyone agrees, would trigger a much more pronounced reaction from Wall Street.
To continue reading, please click here...
The global derivatives market is big. Really big. So big – and so unregulated – in fact that no one really knows exactly how big it is, but the very best estimates put the notional value at $1.2 quadrillion dollars. That handily beats the entire world's "GDP" of $71.8 trillion. The number is so big that it really defies anything on a human scale. Humans don't do quadrillions of anything – at least not usually.
Or think of it this way: There are about 2 quadrillion stars in the "El Gordo" cluster, the largest cluster of galaxies we've observed so far. The derivatives market is galactic in scope.
To continue reading, please click here...
A U.S. debt ceiling debate is once again on Congress' agenda. Congress has about three weeks to pass a budget, and the White House has said that U.S. President Barack Obama will not negotiate over raising the 2013 debt ceiling provisions.
We've seen this script before on debt ceiling deadlines, and with so many other pressing issues. Congress will again kick the can down the road.
Before that, a brewing showdown will again unfold, one with distinct consequences for other forms of legislation and the country.
As U.S. debt as a percentage of GDP hovers at levels not seen since World War II, concerns are growing that the American economy is susceptible to a debt crisis in the near future.
Here's why people are worried: If interest rates return to normal levels of around 5% as the U.S debt approaches $20 trillion, then servicing that debt each year will cost taxpayers $1 trillion.
Does anyone think that the Federal Reserve, as the enabler of all this debt, will be in any rush to raise interest rates?
Following Europe's example, the U.S. debt-to-GDP ratio hit 105.6% in 2013, a perilous level that has long-term repercussions for the world's largest economy, according to Standard & Poor's. By 2016, right around the time that Hillary Clinton will be running in earnest to be president, the ratio will likely hit a staggering 111%.
But how much debt is too much debt? And what are the pitfalls facing the United States in the future? Both questions remain hotly contested among economists, despite a wide acceptance of a "tipping point" theory both by politicians and ordinary Americans.
To continue reading, please click here...
Where will higher mortgage rates raise monthly mortgage payments most?
These three charts from the real estate site Zillow.com depict how higher mortgage rates will affect monthly mortgage payments in different markets throughout the United States.
The charts are based on the percentage of income homeowners spend on their monthly payments, with a pre-housing bubble baseline of 20% of median household income.
The first chart shows how much more expensive than historical norms monthly payments will become in six of the priciest metropolitan areas when mortgage rates climb to 5%, assuming homes appreciate in line with Zillow projections.
Monthly payments in the San Jose metro area will increase the most (22% over the baseline) followed by Los Angeles (19%), San Diego (14%), San Francisco (11%), Portland, OR (7%) and Denver (1%).
To continue reading, please click here...
Today (Monday) federally subsidized Stafford student loan interest rates doubled from 3.4% to 6.8% after Congress failed to reach that would've maintained lower rates by the July 1st deadline.
Monday also marks the beginning of the Independence Day congressional recess, sparking outrage among student advocates as Congress goes on recess without resolving this important issue.
Congress could retroactively "fix" the damage done by the soaring rate increase, but so far no deal is in sight.
The House has already passed a student loan proposal, but the Senate remains divided.
Particularly, Senate Democrats are divided amongst themselves over two different plans, and cannot yet present a strong front on the issue.
Sens. Kay Hagan (D-NC) and Jack Reed (D-RI) have a plan that would extend the 3.4% rate for another year, while also retroactively reducing the rate.
But a bipartisan group of Senators has a different, more long-term solution. They want to permanently tie student loan interest rates to the 10-year Treasury note borrowing rate.
To continue reading, please click here...
I know a lot of you out there don't have sympathy for student loan debtors who complain about their debt.
You see it as a matter of personal responsibility – they chose to sign a contract and so should suck it up and uphold their end of the deal.
Money Morning's Capital Wave Strategist Shah Gilani says it best, though:
"You're not wrong. But there are other forces exerting outside influence on the inner intentions of a lot of 'students' susceptible to being sold a bill of goods. Sometimes we're stupid for being conned, and sometimes the con is just so cleverly concealed."
Think of all the branding, marketing, and pressure swirling around the heads of these young folks.
And many don't have parents or educators taking the time to sit down and weigh the options with them.
If I haven't conjured any sympathy out of you yet, a report recently issued by the National Consumer Law Center identifies a new abuse of student loan debtors:
To continue reading, please click here...
The explosion of the student loan bubble could lead to the next financial crisis in the United States, says a new federal report -which highlights the growing problem in these alarming new charts.
As of 2012, about $1 trillion was tied up in student loans – more than the total amount of credit card debt in the nation, the report by the Federal Reserve Bank of New York said.
The majority of the student loans are backed by the federal government, which means the public bears most of the risk associated with student loans.
And those loans are looking riskier by the day.
