Christian Debt Recovery

Debt Ceiling History

April 12th, 2011 |

Author: Gavin

debt ceiling history

US Debt Trickles into South African Confidence

As leading political figures jostle to resolve a looming US default. South Africa has joined other countries in experiencing the reverberations of a US stamping ground. This global aftershock has been re-enforced as the rand drops against the US dollar and South African bonds fall in value. Online Share trading and share CFDs can be used to take advantage of falling markets.

Global concern is becoming so far reaching, that Hilary Clinton personally reassured China – the primary holder of American treasuries a solution will be reached.

The possibility of a US default is by no means comparable to a Greek default. Rather than being the subject of a plethora of external variables, the potential for US default lies purely in internal politics and is therefore unlikely. Yet the mere thought of the world’s biggest economy running out of money is enough to send global stocks tumbling.

Global concern is instigated by the fast approaching date, August 2nd. When this date is reached the US need’s to have agreed on a potential debt ceiling increase. Sadly the situation is not as simple as it may seem. Obama alone cannot instigate a debt ceiling increase he needs the support of Congress. Congress inevitably requires an agreement from both the Democrats and the Republicans yet the issue of debt/taxation is at the core of each party’s political ethos and something they will argue till the bitter end.

Obama favours a $4 trillion package of cuts, using a combination of spending cuts mixed with taxation adjustments whilst the Republican’s favour a much small $2 trillion package of cuts, protecting wealthier members of society from high taxation. As view-points collide, markets are assessing just how divided these party’s are and whether they would risk the stability of the US economy for the sake of political division.

In the absolute worst case scenario, the current US debt limit trajectory continues and agreement fails to be reached. In this case the US economy will face the wrath of the Rating’s Agencies. Standard & Poor have threatened to lower the US rating from triple A (a top rating) to D (low rating). If this occurred, banks would be banned from using US debt as collateral a nightmarish scenario. Economist Gary Jenkins of Evolution Securities aptly quoted ‘They wouldn’t dare, would they?’

The most likely scenario is an increased debt ceiling, this has happened many times across the history of the US economy including 10 times in the last decade. Both the Republicans and Democrats have the interests of the US economy at their heart and whilst they may seem like a dangerous game of chess, a solution is likely to be resolved. Yet the mere thought of this dangerous chess game taking place has rocked market confidence in the US.

The above information is not investment advice. Trading shares involves a risk of loss.

About the Author

Financial copywriter with an interest in share trading.

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