Recently, I am a little disturbed by my second son question. He is a 4 years old kid, who is so naughty and stubborn like any other kids at his age. The same question he frequently asked. is " Dad, what present will you give me at my birthday? must be a good one, dad.". Unlike his older brother, he is so demanding and very persistent with what he want. For the information, the day is August 2 and it is 8 days left starting from today. He keep me thinking what will be a good present for him :)
Speaking of August 2, we will have a bigger day beside my kid's birthday. There is the last day of increasing US debt to avoid the country being "default". As we can see last Saturday, Democrats and Republicans in Congress are divided over plans to cut the U.S. deficit, a necessary move before the debt ceiling can be raised. The Treasury Department has estimated it will run short of money to pay all of its bills. While most investors believe a deal will be done, nervousness ahead of the decision is still pressuring the dollar. At the present, Fed still keep Quantitative Easing and buy US debt which hold $600 billion US in QE2. The Debt ratio is $ 14.3 trillion or 98.62% GDP
(Source: Reuters)
Default repercussion
A default would knock triple-A U.S. ratings down to at least selective default category overnight.
Conventionally, those who must hold triple-A securities for regulatory reasons are likely to be forced to sell in that event, although it's not clear cut.
If all U.S. government debt were to be rated in the default category, that would trigger downgrades on debt issued by related state entities and others who are benchmarked against government debt. This leaves no investable triple-A securities in the United States.
"The perceived wisdom is that they would have to sell, although there may be room for maneuver for this sort of default. It's not outright default," said Phyllis Reed, head of fixed income research at private asset manager Kleinwort Benson.
"The probability is less than one percent. If all of investors decided to position for this low probability event, and if nothing happens, they are going to lose a lot of money."
The International Swaps & Derivatives Association said it is not clear whether credit default swaps referencing the United States would trigger if a debt deal was not reached by Aug 2.
The cost of insuring the United States against default stands at just 56 basis points, nearly half the March 2009 peak. The CDS curve is nearly flat -- this in itself shows investor jitters, but not the sort of pricing in the market that expects an imminent default.
"Our view is the U.S. will go into some kind of technical default but they are unlikely to go into technical default on government traded debt obligations. They are more likely to default on other government payments such as defense contractors or social security obligations," said Percival Stanion, head of multi-asset strategy at Baring Asset Management.
Conventionally, those who must hold triple-A securities for regulatory reasons are likely to be forced to sell in that event, although it's not clear cut.
If all U.S. government debt were to be rated in the default category, that would trigger downgrades on debt issued by related state entities and others who are benchmarked against government debt. This leaves no investable triple-A securities in the United States.
"The perceived wisdom is that they would have to sell, although there may be room for maneuver for this sort of default. It's not outright default," said Phyllis Reed, head of fixed income research at private asset manager Kleinwort Benson.
"The probability is less than one percent. If all of investors decided to position for this low probability event, and if nothing happens, they are going to lose a lot of money."
The International Swaps & Derivatives Association said it is not clear whether credit default swaps referencing the United States would trigger if a debt deal was not reached by Aug 2.
The cost of insuring the United States against default stands at just 56 basis points, nearly half the March 2009 peak. The CDS curve is nearly flat -- this in itself shows investor jitters, but not the sort of pricing in the market that expects an imminent default.
"Our view is the U.S. will go into some kind of technical default but they are unlikely to go into technical default on government traded debt obligations. They are more likely to default on other government payments such as defense contractors or social security obligations," said Percival Stanion, head of multi-asset strategy at Baring Asset Management.
Well, I guess somebody has a bigger problem to worried about than mine.
Baru-baru ini, saya sedikit terganggu oleh pertanyaan yang sering diajukan oleh anak saya yang kedua. Umurnya baru 4 tahun, dan tingkahnya nakal seperti layak anak seusianya. Yang membuat saya sedikit risih adalah pertanyaan sama yang sering dikatakannya."Pa, nanti kalau ulang tahun saya mau dikasih apa? pokoknya harus yang bagus ya Pa." tanyanya. Tidak seperti kakaknya, dia sangat gigih bila ada sesuatu yang diinginkannya. HUTnya jatuh pada tanggal 2 Agustus, 8 hari dari sekarang. Saya masih memikirkan hadiah apa yang baik untuknya.
Bicara mengenai tanggal 2 Agustus, akan ada peristiwa yang lebih penting dibanding ulang tahun anak saya. Hari itu adalah Deadline terakhir US untuk menaikkan Plafon hutangnya supaya terhindar dari resiko gagal bayar atau "default". Seperti yang kita tahu bahwa Sabtu kemarin terjadi perdebatan antara Partai Demokrat dan Partai Republik di Kongres, dalam hal pemotongan defisit US, sebuah langkah yang perlu sebelum dinaikkannya plafon hutang. Departemen Treasury memperkirakan akan adanya kekurangan dana dalam membayar hutang mereka. Sementara sebagian besar investor yakin bahwa perjanjian ini akan berlangsung lancar, sentimen pasar masih memberatkan dollar. Sampai saat ini Fed masih menjaga kebijakan keuangan longgar dan membeli hutang US sebesar 600 milyar US di QE 2. Rasio hutang senilai 14,3 trilyun atau setara dengan 98,62% GDP.
Artikel dari Reuters menyatakan:
- Bila terjadi default akan menjatuhkan rating US yang sekarang di level AAA
- Hal ini berimbas pada sekuritas tidak akan adanya peringkat AAA di US
- Akan ada default tapi tidak terjadi di obligasi hutang pemerintah melainkan di sektor pertahanan atau di keamanan sosial.
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