United States debt default will disrupt world economy

New analyses by both the Congressional Budget Office and the US Department of the Treasury suggest the United States is rapidly approaching the date at which the government can no longer pay its bills, also known as the “X-date.” This report was published on May 3. “History is clear that even getting close to a breach of the U.S. debt ceiling could cause significant disruptions to financial markets that would damage the economic conditions faced by households and businesses. Real time data, shown below, indicate that markets are already pricing in political brinkmanship related to Federal government default through higher risk premia,” the report stated. So what if the actual breach of the US debt ceiling causes severe damage to the US economy. Analysis by CEA and outside researchers illustrates that if the US government were to default on its obligations — whether to creditors, contractors, or citizens — the economy would quickly shift into reverse, with the depth of the losses a function of how long the breach lasted. A protracted default would likely lead to severe damage to the economy, with job growth swinging from its current pace of robust gains to losses numbering in millions. In other words, defaulting on the government’s debt could reverse the historic economic gains that have been achieved since the President took office: an unemployment rate near a 50-year low, the creation of 12.6 million jobs, and robust consumer spending that has consistently powered a solid, reliable growth engine, supported by pay checks from the strong job market and healthy household balance sheets. These are all apart from the impact a defaulting country like the US could have on the world economy.

It seems, the US not only has no control over its gun culture but also on its economy and its people are sitting ducks awaiting their calamity. Looking at this crisis and the regular US tantrums, one could only wonder whether it is time for the ‘dollar regime’ to yield place to other currency domination. When a country cannot manage its economy to such an extent, it is better to reverse its intervention policies in the world and mind its own business more.

There is no historical precedent for the US government passing the X-date and breaching its debt ceiling without Congress raising or suspending the statutory limit on federal debt. Nevertheless, there is broad consensus amongst economists that such an event would generate an entirely-avoidable economic catastrophe. The US media has been arguing that if protracted debt ceiling face-offs become a permanent feature of the US political landscape, the US reputation for reliability and stability — already derided by China and Russia — will be further weakened. There is already an international financial crisis in which the dollar has been weakening rather than strengthening. The Americans should worry not only about their weakening dollar but also about their nasty geopolitical habits of poking their nose in world affairs. With its geographical advantage and a primacy status, it had done too much of a damage to several countries over a period. It is not just China and Russia that would like to have a hearty laugh at the US plight, but also many others – despite its implications to them.