Saturday, July 16, 2011
The Debt Ceiling Debate and Real Estate
Since the United States is in a deficit position, the only way we can continue supporting our expenses is by borrowing. This is where the Debt Ceiling comes in.
If Congress does not raise the ceiling on our debts, it means only one thing ...
We will find it difficult to borrow more money by selling more Treasury Bonds because no one will trust us to pay it back.
If we cannot sell more Treasury Bonds, we won’t have enough money to cover our debts.
If we don’t have enough money to cover all our debts, we will have to ‘default’ on some of our debts.
If we default on our debt, we’re no different than you or me, who hit hard times and start paying only the interest on our credit card debt.
Because we must default on paying back our debts in full, interest rates on any new debt we manage to acquire will skyrocket. In other words, U.S. Treasuries will become junk bonds.
And junk bonds — bonds whose repayment is questionable — require high interest rates for investors to take on the risk.
When this happens, all interest rates will skyrocket. On auto loans. Credit cards. And, of course, mortgage loans.
And there goes the real estate market.
This was posted by Judy Chapman, a Chicago /Realtor, on her ActiveRain Blog.