Tuesday, July 26, 2011

In Debt We Trust

How do we avoid default at this stage as a nation? Can the two parties arrive at a reasonable solution that not only gets us past this crisis but also leaves us with a better balance sheet than before?

I just read an interview over at Global Post[1] that makes a lot of sense. Unfortunately, it does sound like a two phase solution would be most fruitful at this stage since tempers are so high after weeks of negotiating. The current proposals by Senator Reid and Speaker Boehner are farther from the compromise solutions than is resolvable in the time we have before default. The markets are already reacting and are likely to continue suffering so long as no clear path emerges.

One proposal I've read about is a clean bill including nothing but a debt limit increase. At this point, there would still likely be bipartisan support for such a bill and it would buy time to continue negotiating the finer points of deficit reduction without the stress of a looming deadline. Is this workable? Perhaps, though as the ratings agencies stated it might still result in a rate reduction and thus higher cost for future borrowing.

[1]Debt Crisis interview

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