US Debt Ceiling

Watch out for the dollar. The debt ceiling is approaching and I am sure that the US Treasury has got a plan for what happens if the US Congress does not come to an agreement by 17th October 2013. The US will not default immediately on its overseas obligations to pay interest on its Bonds. The US President may have to "break the law" to ensure stability in the markets and defend US economic interests. This would be a last resort.

Any immediate danger will come from the markets panicking and there is little that the US Treasury , the US President, the IMF and World Bank can do to assuage markets if panic sets in, so the US dollar will fall rapidly and interest rates will go up for all of us.  The dangers are potentially more disastrous than the fall of Lehman Brothers and other large financial institutions.

Panic may not set in initially on  the 17th October  but if the impasse continues there is certain be a panic which could be set off by a power cut, an inept statement from a Treasury official, a power cut or an earthquake in Tokyo. The international finance markets are already jittery and if widespread panic ensues the US Congress might not have time to react - electronic funds transfers systems act much quicker than Democracy.

I am hopeful and confident that common sense will prevail in the US,  as the economic consequences of a real default on US Treasury bonds are too awful to contemplate. Everything must be done to avoid panic and loss of confidence. The financial markets need to hold their nerve, even now, for the sake of all of us.