Soaring Interest Rates on US Default Would Crush Producers

President Biden and Congressional leaders are meeting today at the White House in hopes of averting a catastrophic U.S. debt default that could crush producers with sky-high interest rates.

The political environment for a deal to raise the nation’s borrowing limit and cut spending isn’t good—and the markets are nervously waiting to see if the White House and GOP can end their stalemate.

On Capitol Hill, farm leaders are concerned as a June 1st deadline to avert a possible default draws near.

Senate Ag Chair Debbie Stabenow; “Fed Reserve Chair Jerome Powell said, no one should assume that the Fed can really protect the economy and financial systems and our reputation globally, from the damage that a U.S. default might inflict. We shouldn’t even be talking about a world in which the US doesn’t pay its bills.”

A U.S. default would drive business and consumer borrowing costs through the roof, making months of Fed interest rate tightening to slow inflation ‘child’s play’ by comparison.

Farm Credit Council witness Phillip Morgan told Senate Ag lawmakers; “Any operator we have with an annual operating loan, whether that be cattle, whether that be row crop, right now is facing interest rates that are more than two-times where they were at the beginning of last year. We also have a number of long-term real estate loans that will re-price this year as their pricing, original pricing, expires—they will be facing much higher interest rate costs.”

And Morgan says some operators will face both, but adds, Farm Credit is “well-positioned” to weather that storm.

The bigger, more pressing question is whether farm lenders and the broader economy can weather a possibly catastrophic U.S. default on its debt.

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