US Agrees Debt Ceiling Deal

US Agrees Debt Ceiling Deal.

As expected, although not guaranteed, the two US congress houses have agreed to raise the debt ceiling.

This will allow the US to pay its debts as it was due to run out of money today.

The new deal only secures borrowing for the US government until 15 January 2014.

Comment – The Effect

This problem has not gone away, every few minutes the US government is around £1m more in debt.  (estimated at $1.8bn per day)

Expect volatile stock markets over the Christmas and early New Year period, as we are sure no positive debt deal will be agreed before then.

US borrowing costs will rise.

This means that the benchmark bond yield i.e. the US will rise, meaning that costs of borrowing for the UK, Europe and World with rise.

Indirectly, pension annuity rates in the UK may rise.

The costs of goods and services will rise.

Global inflation will rise, indirectly wages, property values will rise.

Stock markets will continue to be volatile.  The Gilt market and Bond market (government borrowing) could face runs like those experienced in October 1987.