Damage has already occurred
While it appears both sides are coalescing toward a compromise, Cohn said damage had already been done. “Fitch last week, at the end of the week, put Fannie and Freddie on warning they could lose their rating if the government were to default,” she noted as an example of the negative impacts of the debt ceiling stalemate.
A deal struck by President Joe Biden and House Speaker Kevin McCarthy (R-Calif.) passed a critical hurdle Tuesday night. But that doesn’t mean approval of a debt ceiling is a foregone conclusion, as the hurdle clearing merely secures approval on terms of a debate on the matter rather than approval to raise the debt ceiling – which requires approval by both the House and the Senate.
“Just because Biden and McCarthy came to an agreement doesn’t mean they will be able to get the House and the Senate to approve it,” Cohn said. “The longer it goes on, the worse it’s going to get,” Cohn said of the ongoing debate over the debt ceiling.
What could happen?
She broke down the possible consequences of Washington inaction: “It’s a very simple equation. If the government were to default on their debt payments, that would mean that the price of US bonds would plummet. And when prices in bonds go down, yields go up. And that means that bond yields would skyrocket, and therefore, mortgage rates would skyrocket right behind them.”
A default would result in nothing short of an outright crash, she said: “It would crash the real estate market,” which has already slowed significantly over the past year due to rising interest rates, she said.
Source: mpamag.com