Default Winners and Losers Article updated with latest developments on the debt reduction deal.
NEW YORK (
) - The House and Senate are scheduled to vote later Monday afternoon on an eleventh-hour deal struck between President Obama and Congressional leaders that will raise the debt ceiling while cutting spending by $2.4 trillion.
The deal, struck late Sunday night, attempts to raise the debt ceiling in two stages. The first stage will see $917 billion in spending cuts over 10 years. A special committee will also be appointed to draft a plan for another $1.5 trillion in deficit reduction through tax-code overhaul and changes to entitlement programs. If the committee does not find at least $1.2 trillion in savings, a pre-set array of spending cuts will kick in, including cuts to defense spending and entitlement programs.
The deal still faces potential hurdles in the House, as liberal Democrats might be upset over the fact that the deficit reduction plan does not call for any tax increases. Conservative Republicans might object to deeper cuts to defense spending and the fact that the immediate plan does not include significant cuts to entitlement programs.
Investors are still hoping that Congress will steer the U.S. away from an outright default. But if the inconceivable does happen, which businesses and investors will be hurt the most?
It is unlikely that any sector will emerge unscathed from a default. Interest rates would soar, consumer confidence and spending would weaken and corporate profits will drop in the immediate aftermath.
However, Los Angeles-based industry research firm IBISWorld has identified ten industries that will be affected the most in the event of a default based on their exposure to interest rates, along with their major players.
The model assumes sharp spikes in interest rates in the event of a default, wherein the yield on a 10-year Treasury climbs to 5% in 2011, 8.8% in 2012 and 9.8% in 2013.
Not all the winners and losers in the list are obvious. Banks, for instance, do not even figure among those that will be worst affected by a default, although an interest rate rise is sure to hurt demand for loans.
Here are 6 winners and losers, starting with the losers.