Tags: Bove | debt | default | depression

Bove: US Debt Default Would Spark 'Devastating' Depression

Friday, 04 Oct 2013 09:18 AM

By Dan Weil

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If Congress fails to approve an increase in the debt ceiling and a government default ensues, we'll be in for some seriously tough times, says Dick Bove, vice president of equity research at Rafferty Capital Markets.

"The devastation to the United States would be so severe that it would take decades to recover from the depression caused by a default and the attendant dumping of trillions of dollars of U.S. Treasury securities on the global financial markets," he writes in a commentary obtained by CNBC.

Banks wouldn't be able to lend, thanks to the declining value of their bond holdings, and Social Security recipients and participants in other retirement plans would see a cut in their benefits because of the plunge in value of the Treasurys that the plans own, he says.

Editor’s Note:
Weird Trick Adds $1,000 to Your Social Security Checks

Also, returns for money market funds would turn negative, Bove predicts.

The Federal Reserve would suffer too, as Treasurys now account for 55 percent of its $3.8 trillion balance sheet, Bove notes.

"This would raise the question of what is behind the value of the dollar," he said. "It could wipe out the equity at the Fed."

But David Stockman, former director of the Office of Management and Budget, argues that a refusal by Congress to increase the debt limit won't cause a default. That's because the government has revenue of $250 billion a month, he tells Yahoo.

"It is a complete red herring to say there will be a default," Stockman explains. "There will never be a time in which there is not enough cash to pay the interest."

Editor’s Note: Weird Trick Adds $1,000 to Your Social Security Checks

Related Stories:

CNNMoney: Institutional Investors Betting the US Will Default

Global Policymakers to Washington: Don't Play with Fire

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