REPEAT: Debt Ceiling Fallout-What's at Stake for Canada?
BMO provides outlook for economy, borrowing costs, and personal debt ceiling
(firmenpresse) - TORONTO, ONTARIO -- (Marketwire) -- 07/30/11 -- Amid growing speculation of a U.S. government debt downgrade, it's showtime for the U.S. government as the August 2nd deadline is looming to come up with an agreement for raising the $14.4-trillion debt ceiling.
The debate over raising the debt ceiling is not new - since 1962, it has been raised a total of 74 times.
Most expect that both sides will come to an agreement and the debt ceiling will be increased, but the question lingers - what happens if a deal is not reached in a timely manner? What kind of shock waves will roll across the global economy, and more specifically across Canada, as a result? Or if a deal is reached, what is the impact?
Economic Impact
Douglas Porter, Deputy Chief Economist, BMO Economics, says that restraint flowing from a meaningful deficit-reduction deal would keep interest rates low and the greenback weak, stunting the growth of the U.S. economy and, as a result, the growth rate in Canada as well.
"Tough restraint would further reduce the need for the Federal Reserve to raise interest rates anytime soon and would keep the U.S. dollar weak. Furthermore, the restraint will act as a brake on U.S. growth for many years, and in turn, will cap Canada's underlying growth rate," notes Porter.
Mr. Porter also suggests that on the flipside, the Canadian dollar will likely remain robust with the Fed on hold, removing some pressure on the Bank of Canada to raise interest rates.
Mr. Porter cautions that if only half measures are taken to reduce the deficit, it would leave the U.S. vulnerable to ratings downgrades, potential upward pressure on long-term borrowing costs, and could require even greater U.S. fiscal restraint down the road. The outcome would see less near-term U.S. spending restraint, but would also likely lead to a stronger Canadian dollar.
"Canada is a relative safe harbour compared to other problem-plagued economies, but its fundamentals could be heavily marred by negative outcomes from the U.S. debt debate. The risks to the Canadian economy are, on balance, less severe than in 2008, but there is little room for either monetary or fiscal policy to help support the economy if this debate takes an ugly turn."
Borrowing Costs
Paul Taylor, Chief Investing Officer, BMO Harris Private Banking, notes that if the U.S. cannot come to an agreement to raise the debt ceiling, global bond markets and the costs of borrowing will see negative fallout as a result.
"Should the U.S. start defaulting on debt interest payments, U.S. Treasury bond rates will increase, leading to tremendous instability in global bond markets and will drive up the cost of borrowing across the board," said Mr. Taylor. "What this means is that interest rates will soar, making it more difficult for people to borrow to purchase a house or other big ticket items, such as a vehicle."
Mr. Taylor adds that the business sector is not clear of the present danger either, as defaults in the U.S. will mean businesses will not be able to afford their credit lines or invest in capital expenditures, and possibly plunge the economy into another recession.
The 'Personal Debt Ceiling'
So while putting a country's financial house in order is a top priority, it also leads to another important question - are Canadian households moving quickly enough to address their own debt ceilings?
A BMO survey reveals that one in three Canadians are living at or beyond their means, with 27 per cent living paycheque to paycheque - a 10 per cent increase over last year.
BMO Bank of Montreal offers the top 5 tips to avoid hitting your personal debt ceiling:
Contacts:
Media Contacts:
Matthew Duffin, Toronto
416-867-3996
Sarah Bensadoun, Montreal
514-877-8224
Laurie Grant, Vancouver
604-665-7596
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Datum: 30.07.2011 - 03:00 Uhr
Sprache: Deutsch
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