President Barack Obama demanded that the Republican-led House of Representatives end the three day government shutdown, but no negotiations have been made so far. The government leaders must compromise quickly to avoid a "catastrophic" default before the debt limit date on October 17. A default, by definition, is when a debtor fails to fulfill his obligations stated in the debt contract. The government has reached its $16.999 trillion limit in May, but despite the U.S Treasury's creative strategies, these will not be enough to meet the nation's obligations on the 17th. Thus, the government could run out of money and end up in a default, which the U.S Treasury warns could cause the economy to disintegrate into a state that is worse than the Great Recession. This would mean that the country's credit rate would drop and "job creation, consumer spending and economic growth" would surely be affected.
House Speaker John Boehner told Republicans that he will not let the government reach the point of a default, and says that if needed, he will pass a measure to prevent this with a slim Republican vote and a largely Democratic vote.
The government's time is running out, and a solution must be made. It's either they work together, or continue this deadlock.
What do you think the next step of the government should be? Is the economy actually going to plummet down as badly as the U.S Treasury claims?
1 comment:
I can't think of a reason not to believe that a US credit default, the first one in the nation's history, would severely damage the US economy. The US credit rating was downgraded, and both American and global markets were roiled during the last debt ceiling standoff in 2011 merely at the prospect of default, let alone actual default. On August 8, 2011, after the credit downgrade, all three major US indexes (DJIA, Nasdaq, and S&P 500) had their worst days since the onset of the recession, sinking 5.6%, 6.9%, and 6.7%, respectively. That's what the indexes sometimes gain in an entire year getting wiped out in a single day.
If the debt ceiling debate results in another partisan standoff this time around, I wouldn't be the least surprised if the US credit rating and markets were adversely affected again. Thus, Congressmen have a vested interest in making sure that the Congress not only avoids default but also avoids a partisan standoff this time around, and Boehner's comments seem to reflect an understanding of this.
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