Economy Opinion USA

The U.S is going to default after August 2nd, if the debt ceiling is not raised

On Tuesday Members of the House of Representatives of the U.S. Congress voted against the increase of government borrowing limit without significant reductions in government spending.

Now the U.S. administration has 11 weeks to avoid a default that may occur after August 2, if Congress does not vote for raising the ceiling. On Wednesday, U.S. President Barack Obama will meet with representatives of the Republican Party for further negotiations on the fate of the national debt.

The U.S. government debt reached a ceiling determined by the legislation – 14.294 trillion dollars, even in mid-May, after which the country’s finance minister Timothy Geithner, made a dramatic appeal to Congress. Then he called on Congress as early as possible to raise limits on state borrowing in order to “protect the faith and credit of the United States and to avoid catastrophic economic consequences for citizens.”

However, investors are not configured to dramatize the situation, as it does Geithner. The voting results will not affect the attitude of investors in U.S. debt, because “markets are accustomed to great theatricality of any debate in the run-up to raise the debt ceiling,” says chief economist Wrightston ICAP Plc Lou Crandall.

National debt ceiling – the American “invention”, the first upper limit for government USA borrowing was established in 1917, when it was only 11.5 billion dollars. Prior to that, Congress should approve each placement of debt.

Since March 1962 the ceiling for the U.S. national debt increased 74 times, including ten times since 2001. The most significant excess of the ceiling was in 1995-1996 – during the presidency of Bill Clinton. Despite this, the government always managed to reach an agreement with lawmakers, and the U.S. did not declare a default in modern history.

See the Video:

Political Checklist: Debt Ceiling Vote Symbolism




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