Companies Prepare for Unthinkable Default
July 23, 2011
U.S. officials have repeatedly said the consequences of a possible
default are so severe there is no alternative to raising the debt
ceiling. But with less than two weeks to go until the August 2 deadline,
key U.S. agencies and private financial firms are also planning for a
The chief of the Philadelphia branch of the U.S. central bank tells
Reuters that the Federal Reserve is working with the Treasury Department
on what to do if and when the government runs out of money.
Fed chief Charles Plosser says policy makers are in "contingency
planning mode," trying to determine which debts would be paid. He says
the Fed is trying to determine what to do with U.S. Treasuries, like
bonds. Many private banks use bonds as collateral in order to get cash
loans from the central bank.
The New York Times said Thursday several prominent financial firms are
working on their own "doomsday plans" (plans to deal with a worst-case
Some firms are moving to reduce their holdings of Treasury bonds while
some investment funds are stockpiling cash.
Other companies are coming up with plans for how to do business if a
default causes interest rates to spike, increasing theit day-to-day