Fed Failure to Raise Debt Limit?

Fed Failure to Raise Debt Limit?

QUESTION:

Do you have any insights into how a failure to raise the debt limit would affect inventory management and costs? Any projections about the logistics implications?

 

EXPERT ANSWER:

Ron Giuntini
Consultant and Principal
Giuntini & Company, Inc.

My understanding of the impact of the debt limit not being raised is that the Fed govt., in the constitution, MUST pay its debt interest payments first before any other expenditure is incurred. What happens is that the Federal government WILL shrink because it can no longer spend more than it takes in. Will that have impacts upon the economy, sure, but all parts of a business will be impacted, including inventory investment

What will materially impact the level of supply chain inventory investment is the Fed's policy of keeping interest rates low; companies have been getting VERY cheap funds to carry their inventory for almost 4 years. Now when the Fed raises interest rates, all HELL will break out because companies are now addicted to low interest rates and if financial inventory carrying costs go up 2-3 fold, that is from about 1% to 3/4%, CEOs/CFOs will be pounding SCM professionals to reduce inventory investment....not going to be pretty!!!


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