As predicted last night, stocks lost ground in early morning trading and a lot of industry experts are attributing the decline to good ole American debt, currently at $14.3 trillion.
Congress has till August 2nd to raise the debt limit or risk defaulting on U.S. Treasury securities, which are considered the safest in the world. This type of default could potentially crush the nation’s gold plated AAA credit rating and hike interest rates.
Before that happens, however, “The stock market is where a lot of the volatility will occur,” says
Bernie Williams, vice president of discretionary money management at USAA. Despite a strong earnings season, stock investors are likely to be spooked by a potential default, he says.
Even if Congress does raise the debt limit in time, the markets will likely be disappointed if the deal doesn’t include significant steps to reduce the deficit, Williams says. Both Standard & Poor’s and Moody’s have threatened to downgrade the U.S. credit rating if Congress doesn’t take significant steps to reduce the nation’s deficits.
That becomes increasingly difficult as the Aug. 2 deadline approaches. “They’re trying to construct something in the middle of a huge political battle, and the fear is that it’s not going to be well thought-out,” Williams says. We shall see what markets panics.