I just read on Bloomberg that “Senate Leaders Say They’re Optimistic on U.S. Debt-Cap Accord“
Well if Congress wants to buy time and avoid a global financial meltdown (at least in the short term) they had better be optimistic. Especially since its the dysfunctional bi-partisan US political system rather than the the state of the that is driving this present crisis [for the most part part].
Notwithstanding the the undeniable fact that the raising of the debt ceiling is really tantamount to putting putting ‘some ointment and a band-aid’ on a wound that needs surgery followed by a course of antibiotics. However without this band-aid the US Treasury has said it will reach the debt cap of US$16.7 trillion on 17 October 2013.
The US Congressional Budget Office pulled no punches issuing a warning that if Congress does nothing, the US federal government will not be able to meet repayments between 23 Oct. and 31 Oct. 2013 (starting with the US$12b Social Security payment which is due on 23 October 2013). A US default would send shock waves through Wall Street, triggering another economic crisis as borrowing costs would spike across the economy. These shock waves would reverberate outwards affecting country after country.
Jason Lange of Stuff.co.nz in a piece (How the US could default) posted last week on 8 October put it like this:
“[In the event of a US default, the US economy] would sink like a stone. Once default began, the [US] government would have to slash its spending overnight by about a third. The fiscal drag, if it lasted a full year, would be the equivalent of up to 4.2 per cent of national economic output, according to calculations by Goldman Sachs.
That doesn’t take into account the potential for a financial crisis. If investors lost their cool, stock markets could tumble, hitting pension funds and leading consumers to spend less of their money. Credit markets could freeze up because investors around the world might reassess the value of US debt, which serves as collateral for trillions of dollars in loans and other financial transactions [around the world]. The Treasury has warned a default could trigger the worst recession since the Great Depression.”
Incidentally this nightmare that would result from the imminent default in the event of a congressional impasse would coincide with the arrival of Halloween. Oh the irony!
According to Blomberg the Agreement will:
“The emerging agreement would suspend the debt limit through Feb. 15, 2014, fund the government through Jan. 15, 2014, and require a House-Senate conference on budget matters by Dec. 15, according to a Senate source familiar with the talks, who spoke on condition of anonymity to discuss them.”
The Recent USA Federal Government Services Shutdown
In recent weeks we’ve seen picture son TV of federal government shutdown where with the prospect of a looming US default after Republicans in Congress ruled out the ability of the US to borrow any more, without concessions (mostly Medicare) from President Barack Obama. The inability to borrow resulted in the systematic shutdown of US Federal services.
- VIDEO: Fed’s Williams: U.S. Debt Default Would Be ‘very, Very Dangerous’ (marketcurator.com)
- Analysis – What default? Republicans downplay impact of U.S. debt limit (soshitech.com)
- Gold Rebounds From Three-Month Low as U.S. Debt Talks Drag On (bloomberg.com)
- Pressure on US as global economy meetings near end (bigstory.ap.org)
- The 2013 U.S Debt Disaster (theundergraduateexeter.wordpress.com)
- World Economic Leaders Express Concern as U.S. Debt Deadline Looms (gawker.com)
- State treasurer says debt refi saves $31.4M; warns that debt default impact would be swift, brutal (theolympian.com)
- World prepares for U.S. debt default (smd12364.newsvine.com)
- 12 Very Ominous Warnings About What A U.S. Debt Default Would Mean For The Global Economy (endtimeheadlines.wordpress.com)
- 12 Very Ominous Warnings About What A U.S. Debt Default Would Mean For The Global Economy (thesurvivalplaceblog.com)