LAS VEGAS-The downgrade of U.S. debt by Standard & Poor's may have a small silver lining.
That was the message from Paul Parrish, EVP/CFO at Nevada FCU, and a member of Credit Union Economics Group. He said S&P's technical opinion simply mirrors what most observers have been thinking: "Something has got to happen with this massive debt...and that something is going to hurt to some degree."
"The sooner a realistic plan is launched, the less painful it may have to be," Parrish assessed. "And thus far, analysts have not subscribed to the most recent watered-down effort by Congress. Hence, a higher level of pain is anticipated further down the road."
As for the downgrade's impact on member borrowing, Parrish added, "Our borrowers' confidence is primarily a function of their employment outlook, and this event certainly is not looked upon as a catalyst to reverse any trends in the employment picture."
Conventional wisdom would dictate that the downgrade will cause interest rates to rise, but Parrish cautioned there are many factors that could impact where rates are heading and how soon.
"QE-3 is on the horizon, global customers may continue to be overly attracted to our debt depending upon what solutions are cobbled together in Europe and Japan, and an increasingly spooky stock market may prescribe a flight to quality in a manner that would indicate that AA+ is the new AAA. As such, rates may remain low for the near term."
Regardless, NFCU is not projecting any "magical turnaround" for its balance sheet. "We will continue to bite and scratch for what little is out there, particularly while rates are still favorable. We will temper that, however, by keeping a wary eye on our interest rate risk profile [and] be poised for rising rates in terms of liquidity and investment strategy."
