For Release: July 18, 2011
Washington, DC – The Financial Planning Association® (FPA®) today called on Congress and the President to protect America’s bond rating and raise the debt ceiling.
“The full faith and credit of the United States should never be called into question. Failure to raise the debt ceiling most certainly will lead to higher interest rates for American consumers and less capital available for small businesses,” said FPA Executive Director and CEO Marvin W. Tuttle, Jr. CAE. “Defaulting on our financial obligations would jeopardize economic growth. But Congress and the President should take serious and substantial steps now to address our nation’s grave fiscal imbalance. “No financial planner would advise a client with a debt problem to get a larger line of credit without having a commitment and a plan to address the underlying problem.”
Without action, the U.S. risks defaulting on $30 billion in short-term debt set to mature on Aug. 4, 2011. The two largest credit rating agencies have already stated that the nation’s bond rating is under review for possible downgrade.
Economists are uncertain of the specific outcome of a default but widely agree that there would be large-scale disruptions to the credit and stock markets. Such a disruption - along with the uncertainty caused by the nation’s increasing debt load - would present a serious challenge for financial planners and their clients. A downgrade likely would lead to higher interest rates for the federal government, increasing the amount of money required to service the nation’s debt and exacerbating budget issues. Individuals with adjustable rate loans could quickly face higher interest payments on credit cards or adjustable-rate mortgages. New loan products for fixed-rate mortgages, auto and student loans would have higher rates, diminishing individual’s purchasing power. Beside the direct impacts on consumers, a default could further erode Americans’ confidence in financial markets.