The clock is ticking ever closer to that point in time when the USA reaches its self imposed $14.3 trillion debt ceiling. Without a political agreement to increase that ceiling there is the nightmare scenario of The USA defaulting on its debts.


US debt in the form of government Treasuries is considered just about the safest financial asset on the markets. Treasuries are held by both central banks and investors across the globe and a default would cause worldwide financial chaos making all that went previous pale into insignificance.

As President Barack Obama said "If investors around the world thought that the full faith and credit of the United States was not being backed up, if they thought that we might renege on our IOU's, it could unravel the entire financial system. We could have a worse recession than we already had, a worse financial crisis than we already had".

The problem for the USA is that, since the Second Liberty Act of 1917, the government of the USA has had its borrowing capped. It was initially set up to allow the US to borrow to fund its entry into the First World War and has been increased as required over the years. But now a political crunch time has arrived, with Republicans demanding that the Democrats agree to trillions in cuts before they will agree to allow the debt ceiling cap to be increased. Brinkmanship with the stake being the world's economy.

Apart from possible non payment of Treasury coupons there is also the US internal issue of public sector wages potentially not being paid if they run out of money.

Ben Bernanke, the chairman of the Federal Reserve Bank, is urging both sides not to use this issue as a political football and the vice president, Joe Biden has been sent in to broker a deal.

In the meantime the US treasury secretary, Timothy Geithner, has sad that he can juggle the figures to keep within the debt limit until early August.

How can the whole planet gave become so reliant on US debt?

But all it really comes down to is how much the democrats are willing to give in, as the republicans won't really allow a default. Will they?

Then of course comes the question of where they will get the money from. As one wag put it, it looks like 'Bennie and the Inkjets' will be performing again!

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