Prior to the raising of the debt ceiling, Fund Administrator Richard Villagomez had expressed concern about the effects of a default and the credit rating downgrade.
He told Variety, “We are very concerned because the tertiary effects would be negative to the securities markets. We’ve been following this very closely since it was first reported in the U.S.”
He said from an operational standpoint, if the debt limit were reached the U.S. government would not be able to borrow more money to fund operations and pay current obligations.
These, he said, would have to be paid by current revenues resulting in the delay of payments for these items which include contracts, grants, benefits, and interest payments.
He said from a credit standpoint, delayed payments might negatively affect credit rating of the U.S. which may result in higher interest rates on borrowings.
“The ‘risk free’ rate of lending will likely increase (in the short run) affecting the ‘riskiness’ of every asset class. The selloff of U.S. Treasuries and agency bonds is likely and will drive the price of those bonds down. But it may also have a negative effect on corporate stocks and bonds…including the ones the [Retirement Fund] holds in its portfolio,” Villagomez added.
