With the debt ceiling deadline looming, we need to ask ourselves some serious questions, but first we need to take a look at how a U.S. government default might affect the gaming industry.
First, credit rating agencies would downgrade Treasury bonds, so the U.S. would be forced to pay more to attract investors. But really, the U.S. financial situation is no big secret. Investors know what is going on. If the U.S. can’t pay more money to attract investors, then they will stop buying our debt. We can think of it as if the government were a household with dozens of credit cards all maxed out, and our banker finally says no more. Of course that would be painful, but it would likely be the first step in breaking our bad fiscal habits. We might feel like our banker is a villain, but he should really be our hero.
Rising interest rates would slow down growth in our already sluggish economy. Stock prices would undoubtedly decline and dividend payments would all but dry up. That loss of wealth would reduce the spend that many of our customers would allocate to entertainment. Next, paychecks for government workers and state and local governments would likely be withheld temporarily. This would illuminate their casino visits in the short term, too. This is clearly a negative impact on the casino business.
When there is revenue coming into the government, that flow would be allocated to high priority expenditures like social security, Medicare and Medicaid recipients. Next in line would be the bond holders to insure the government could reduce the negative impact to its credit rating.
Since seniors make up a large slice of our customer base pie, that impact might be mitigated somewhat, but not entirely. Social security is generally only a supplemental part of our retirees’ income. If they rely on stocks and dividends, they might be feeling the squeeze. If, on the other hand, they rely on pensions and bond investments, they should be doing OK.
Finally, the unemployment rate would grow greatly. In the worst months of the Great Recession, the U.S. was losing hundreds of thousands of jobs each month. Those kinds of job losses could happen again if a freeze-up of the financial system and an increase in interest rates spooks companies once more.
There are very few people who would argue that the last three years of economic uncertainty have impacted our industry negatively. It would be easy to argue that we must find a way, by whatever means, to raise the debt ceiling. It would certainly help us avoid the short-term pain. The problems that brought us to this point, however, are the unrestrained spending habits of Congress and our absurd growth in government. Whether we are Democrat or Republican, we are all culpable for this situation. Since the 1940s, we have grown government and spent revenue like a ship of fools acting like tomorrow will never come and there will never be any hell to pay. Sure, we could blame Congress and presidents for allowing this to happen, but we as a country voted the rascals in. That tomorrow is here and maybe it’s time we sit on our own blisters.
Of course, Congress being Congress, they will likely find a way to postpone the inevitable tightening of the belt we must do as a country. Personally, I wish we would choose to have this be the time we accept our lumps and move ahead at rebuilding this once fine country. If we don’t, we’ll simply be postponing the inevitable for another day.
Peter E. Mead
Publisher,
Casino Enterprise Management
Comments
Post new comment