North America

US Crisis over for Now, Budget Deal Postpones Financial Doomsday

us_2Zionist US President Obama and Congress have signed off on extending the debt ceiling through to February. The new legislation only temporarily solves the US budget dispute, begging the question if America will ever limit its borrowing.

The extension deal will reopen the government after 16 days of partial shutdown and fund spending through January 15 while extending the $16.7 trillion debt ceiling through to February 7. The next major deadline is the December 13 target date for budget negotiations.

In three months’ time, US policymakers will again rehash the budget and the debt limit, which billionaire Warren Buffett called a “political weapon of mass destruction” in an interview with CNBC, saying it shouldn’t be used by politicians to settle budget disputes, as it brings real financial harm.

Although US policymakers haven’t specified the new borrowing limit, the Bipartisan Policy Centre think tank estimated the debt limit should be raised by another $1.1 trillion to help Washington cover its obligations through to December 2014.

Standard & Poor’s estimates the shutdown cost the US economy $24 billion, or $1.5 billion per day, the rating agency said on Wednesday. The agency also believes the shutdown will pare fourth quarter GDP by 0.6 percent.
Even though the White House and lawmakers nearly avoided a technical debt default this time around, the solution is only temporary.

Wall Street rejoiced after news broke the Senate reached a deal to avert a default, the Dow Jones Industrial Average soared 200 points. At the close of the New York Exchange, the Dow Jones climbed 1.36 percent nearly reaching a record, the S&P 500 increased 1.38 percent, and the NASDAQ Composite jumped 1.20 percent.
Asian floors met the news with split enthusiasm, but general market sentiment was high on news the world’s largest economy wouldn’t experience a sovereign debt default.

The political stalemate in Washington has already prompted consumers to devalue their outlook of the American economy, and hit its sharpest one-week drop since the collapse of Lehman Brothers.
“If people are afraid that the government policy brinkmanship will resurface again, and with it the risk of another shutdown or worse, they’ll remain afraid to open up their check books. That points to another Humbug holiday season,” the agency said in their report.

When Congress neared the ‘fiscal cliff’ in the summer of 2011, consumer confidence fell to a 31-year low in August.
Coming very close to defaulting on their debt and a last minute limit increase isn’t a new practice in Washington. The US debt ceiling has been in place for nearly a century, and the country’s policymakers have always raised their spending powers, simply borrowing money and writing a big ‘IOU’ to the American people.

America’s debt ceiling, or the amount of debt the government can hold, has been increased 79 times since 1960, under both Democratic and Republican Presidential administrations. The outstanding debt of the world’s largest economy is currently $16.7 trillion, and is spread through domestic and foreign debt.

Back to top button
Close