Benefits of a debt deal

The news this week has been riddled with bad news out of Washington D.C. about the U.S. Congress’ inability to negotiate a debt deal that will both raise the debt ceiling and reduce the long term government debt. I could continue to discuss who is more at fault and what the ramifications of not completing a deal in time are. Yesterday I spoke a little about that and perhaps tomorrow I will as well (we’ll see how it goes). However for today at least, I would like to focus on what would happen if the government is able to get a deal done by that August 2 deadline.

The obvious benefits would be that the U.S.’ credit rating would remain at AAA, the highest level possible. This ensures both low interest rates and the continuing foreign and domestic investment by companies in the U.S. This is actually just as important for the rest of the world as much as it is for the U.S. The other obvious benefit from securing a debt deal in time is an injection of market certainty. This would be very good for the economy as it will help the many American companies that are sitting on a lot of cash to have the confidence to go out and spend it on business investments, including new hires (most importantly).

Another likely benefit that I can see from successfully completing a debt deal before August 2 is that the U.S. Dollar will strengthen. This will make many products less expensive for Americans to buy. This includes both industrial products like heavy equipment and some imported consumer products. The result will be an increase in consumer spending and a bit of breathing room for households living check-to-check.

If you put all these benefits together, you begin to see the overall positive impact a successful debt deal would have on the overall economy. This is why this issue is so important to everyone in the U.S. and the rest of the world.