I read, somewhere like 40 cents on every dollar spent by the U.S. is borrowed.
That is what scares me is that a political publicity stunt gets out of hand, and next thing you know there is a overall domino effect across the World economy. Imagine the borrowing costs going up on just about everything, because of the ties to the U.S. treasuries for things like credit cards, student loans, and so on?
I have wondered about all the clauses in contracts floating around that say if some asset or company's credit rating is downgraded, then penalties, debts, or whatever kick in. It would be an automagic downgrade across the board of credit ratings for all kinds of things. I for instance dabbled in small shipping companies a while back. They all had agreements with their banks to buy ships, that where directly tied to certain credit ratings being maintained and all kinds of bad things like immediate default would occur if their credit ratings slipped.
I could see trillions of dollars of the economy wiped out in small to medium size companies going bankrupt overnight, even if it was just a short lived hick-up for the macro economy, turning in to a total train wreck.
Think about all those short-term operating loans for companies out there, that they do their day to day business based on them being able to tap that pool of cash from the bank. I bet most of those are tied directly to various credit ratings. The credit markets would seize up again, but in such a fundamentally systematic way, that I don't think there would be any way for them to simply unsieze them by printing dollars and throwing them out the window. It would not be like the last one. The last one seized up because, the markets should have seized up earlier. They were fundamentally finally working correctly when banks decided not to make more bad loans. They just overshot, and were not making loans to anyone. It really was not a seizure, as much as a short stop; but, in this case it would be the fundamental selection process or mechanism by which loans are made or not made that would seize up.
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