Silicon Valley braces for national debt crash

July 29, 2011 7:01:21 PM PDT
Silicon Valley is watching Capitol Hill closely because the potential of a federal default would have huge consequences for America's high-tech center.

Some of Silicon Valley's top executives have job creation on their minds. Those executives gathered on Friday to focus attention on an action plan, but their goal may unravel dramatically if the United States defaults on its loans and fails to reach a budget deal.

"Stocks could fall 20 to 30 percent," said Serious Energy CEO Kevin Surace. "GDP could have a hit of five percent. It's going to affect borrowing, it's going to affect sales, it's going to affect everyone because even psychologically, every company holds back on their buying because they don't know when they're going to get their next dollar."

The companies in the best positions have plenty of cash on their ledgers, sheltering themselves from rising interest rates.

"We don't borrow that much," said Wyse Technology President and CEO Tarkan Maner. "We're a self-sustaining company. We're a fast-growing California company, investing (and) innovating fast. It might not impact us as a company that much, but it's going to impact some companies who are borrowing a lot to operate."

Executives from top U.S. banks attended a meeting with treasury officials in Washington discuss the impact on rates. They have told President Obama that the consequences of default would be grave.

There are also concerns of a global impact. Silicon Valley is also a magnet for international companies that do their research and development in the United States and sell to the economy. Huawei Technologies of China is one of those companies.

"If the government is dysfunctional, it creates a complex environment for us all," said John Roese with Huawei Technologies. "Fundamentally, it makes it difficult for me to commit to the North American market, to commit to hiring and that's uncertainty is not good for anybody."

Another impact of Washington's budget impasse could be reduced government spending. Budget for the information technology sector -- the heart of what Silicon Valley does -- is expected to be cut by two to three percent.

The clock is ticking, and business leaders in Silicon Valley say the future course of economy is in the hands of Congress.


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