25 July 2011 22:12 [Source: ICIS news]
WASHINGTON (ICIS)--The ?xml:namespace>
Larry Sloan, president of the Society of Chemical Manufacturers and Affiliates (SOCMA), said that as long as the political logjam over raising the US government’s borrowing authority persists, the greater the threat to the nation’s credit rating and the overall economy.
Republicans and Democrats in Congress along with President Barack Obama have been struggling for weeks to come up with a mutually acceptable plan to raise the limit on the federal government’s authority to borrow money - known as the debt limit or ceiling.
By law, the US Treasury Department may not issue bonds or otherwise borrow money in excess of the debt limit set by Congress. The current debt limit is set at $14,300bn (€10,010bn).
But Treasury’s ability to borrow more money - to pay federal programmes and meet other debt payment obligations - is expected to reach the $14,300bn ceiling on or about 2 August.
Even if Republicans and Democrats on Capitol Hill can work out an agreement to increase the debt limit before next Tuesday, the
“A less than stellar credit rating on our sovereign debt will trickle down to higher interest rates on everything from capital improvement loans to revolving credit,” Sloan said.
As a consequence, chemical companies and other industrial firms that depend on outside funding for capital improvements or major equipment purchases “could feel the brunt”, he said.
“In addition, those firms with investments tied up in the market - and these days who isn’t - could be negatively impacted by a faltering Dow Jones Industrial Average [DJIA],” Sloan added.
He noted that
“I would suspect that that borrowing costs will likely increase in the short term, maybe not a lot but by something”, if the
“And this would then cause companies to hold off on new investments, and this clearly would then trickle through the economy and could result in a true double-dip recession if foreign markets sense that there is no clear resolution in sight,” he said.
Among other consequences, a
That might make US exports more competitive in foreign markets, Sloan noted, but it also would increase the cost of
“The cost of raw material imports could far outpace any export boost resulting from a cheaper dollar, and profitability would suffer,” Sloan said.
“And what if foreign markets start demanding greater assurances from US suppliers that they too will not default?” Sloan said. “There could be additional restrictions imposed on us by our export markets to counter the weaker dollar’s export-boosting benefit.”
But, he added, no one can really say what might happen if the US were to go into default or simply has its credit rating downgraded.
“This would be the first time in our history that our nation’s credit rating is downgraded, so we are in unchartered territory,” he said.
($1 = €0.70)
Paul Hodges studies key influencers shaping the chemical industry in Chemicals and the Economy
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