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This will probably be the buzziest report of the day…According to Andrew Garthwaite at Credit Suisse (via CNBC), stocks would fall by 30% if the US defaulted, and GDP would shrink by 5%.
More importantly, even if the US doesn’t default, but instead saves cash to make coupon payments, the economy will get killed:
“As our economists point out, each month of no rise in the ceiling could easily take 0.5-1 per cent off GDP.
In this case, equity markets would drop by 10-15 per cent, prompting Congress to find a solution, and bond yields would fall to 2.75 per cent.” If that proved to be the case, investors would, in Garthwaite’s opinion, need to get into defensive stocks and out of the dollar.