Could America default on its debt?By James North –
America currently has a massive $14.3 trillion of public debt and is in the midst of a political struggle that could send shockwaves around the world.
In order for America not to default on payments to maintain its levels of debt, congress needs to arrange a plan to increase the limit that America is allowed to borrow. Under current legislation, America is allowed to borrow as much as it likes but sets parameters as safeguards.
However, due to the current financial situation, America has found that it will need to borrow above and beyond those self-inflicted limits aptly named the 'debt ceiling'.
This, of course, causes a problem: Republicans and Democrats are divided as to whether to vote in favour of raising these limits. If an agreement isn't met soon, we could see America begin to default on its payments by as early as August 2nd this year.
What would that mean to citizens in America and around the world? We could see America facing some tough decisions on where its money is spent: welfare payments, defence costs, state pensions and education could all be hit. This would mark the first time in history that the world’s wealthiest nation was unable to pay its debts.
The International Monetary Fund (IMF) has made a statement saying, "If no agreement could be reached, there could be a severe shock to the economy and to world financial markets." There is also a risk that America’s debt could be downgraded from its current triple-A status, which would cause huge ramifications for anyone holding these investments.
The actual chances of a default are slim. President Obama has cut short a week-long Independence Day break for congress so that they can debate the issue, with many expecting an eleventh-hour deal to be reached. However, it is very worrying that America has found itself in this position, and it is a harsh wakeup call of what the future may hold.
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