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US Debt Ceiling Approaches

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Some of you may be vaguely aware that the US government is about to reach its credit limit - the "debt ceiling", and Republicans in the US Congress are making it very difficult for the Democrats to raise this limit once again.

 

With the weekend here, it looks like the debt limit will not be passed by August 2nd (Tuesday), and we may very well go into default. If the US government runs out of money, it will not be the first time. The government was shut down for a few weeks due to a budget crisis when Clinton was in office.

 

The rating agencies are threatening to downgrade the US government's credit rating if they don't raise the debt ceiling. This will be a huge problem because most of the world holds Treasury Bills. This could trigger a massive sell-off of US government debt. It could also trigger a bank run, like in the Great Depression, as bondholders try to redeem their Treasury Bills.

 

Most of the world relies on the stability of the US debt to finance their own economy. T-bills are traded between foreign banks and governments who don't really want each other's currency. A rating drop could ruin the global market for Treasury Bills. Everyone might attempt to cash them out at their current value before the value drops, causing the US government to either say "we can't pay them all" or to print enough money to cover the debt. If we can't pay for them, they are worthless, and if we print enough money to reimburse all the bondholders then the dollar will plummet.

 

We also have a third political party in the US called the "Tea Party" that wants to restore financial sanity to the government. Sounds great, right? Not really. They see clearly that we are drowning in debt, and no one in Congress or the White House for the last twenty years has been able to stop it. They want to fix this, with things like a Constitutional amendment requiring the Federal Government to have a balanced budget. They are pushing on Republican negotiators to not accept the compromise bills coming out of the Senate that could avoid the impending default next week. They actually want the train wreck to happen. They think it will make Obama look bad (it will) and the resulting chaos can be used to fix our financial system (it won't).

 

Obama will not sign anything that will reduce the size of the US government by more than a token few billion dollars, because his core base is the federal government and the millions of dependent US citizens. Obama does not want to be a one-term president. With fifty million US baby boomers about to retire in the next few years, all wanting their Social Security, all the Democrats have to do is say "I will protect your Social Security from the Republicans", and they might get re-elected in 2012. So they have no incentive to cave in on the budget.

 

So, the financial world is about to get hit by an asteroid, in a way, unless they can fix this in the next couple days. There is nothing an investor/consumer/business leader can do to prepare for this except maybe buy gold (which is overpriced and would drop if they raised the debt ceiling at the last second).

 

Good luck everyone. Let's hope these guys can find a solution on Monday.

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Ugh, reading this was depressing. Yeah, it's a tricky situation, but I'm not so much worried about the "bank run" you were talking about. Even with our financial crisis, we're still near the top in the world in power and money, and it's going to take a lot more for other countries to completely lose faith in us. To me this just seems like where the two party system is kind of set up to fail. Having two competing parties makes it near impossible to get anything done. I agree with your opinion of the Tea Party, hopefully that's not something people are taking too seriously. All we can do is wait... :(

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I've been semi-following this, and obviously being in Canada this concerns me. I'am hoping that they can reach an agreement very soon.

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I want to see them print that trillion dollar coin :party.

 

But you know what? The sad thing is both sides would have agreed to compromise if it weren't for the tea party =p. Too bad America is getting run into the dirt by morons (what is bad for the US, is actually bad for everyone in the world at the moment).

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We are closet socialist, we might as been come out and own up to it.

 

The rich are destroying the middle class here in the US with their greed.

 

Is Cuba better off then Mexico?

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The American policy of dealing with this is not a solution, they just win time.

Do you really think that borrowing money all the time, and highering the debt ceiling will fix the problems?

The US debt is already way to high for many years, too bad no one has fixed it yet.

 

http://www.usdebtclock.org/

 

If I have to believe this stats it's bad, very bad...

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The American policy of dealing with this is not a solution, they just win time.

Do you really think that borrowing money all the time, and highering the debt ceiling will fix the problems?

The US debt is already way to high for many years, too bad no one has fixed it yet.

 

http://www.usdebtclock.org/

 

If I have to believe this stats it's bad, very bad...

 

Man what a stupid plan. "Republicans and their tea party supporters would get spending cuts at least as large as the amount the debt ceiling would grow and avoid any tax increases"

 

The one of the least taxed country in the western world is borrowing more money inorder to pay for its tax cuts........US is really screwed lol. They are kinda like Greece now (lets keep low taxes by borrowing lots of money. Good idea until 10 years down the line when we go completely bust =D). Even if they cut out medicare completely it can't save them enough money to pay of the interest lol.

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Apparently they've reached some sort of agreement now

 

It's about freaking time.

Stupid Congress takes way too long to decide on a decent compromise. They should've been able to reach this awhile ago. Then the Tea Party had to stick their head in and everything got messed up :(

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It's about freaking time.

Stupid Congress takes way too long to decide on a decent compromise. They should've been able to reach this awhile ago. Then the Tea Party had to stick their head in and everything got messed up :(

 

I think it still needs to pass through the Senate

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I think it still needs to pass through the Senate

...f*** politics. ugh.

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I must agree with JohnWayne, the rich f*** everything up. They just need to have everything, not willing to share

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well it is so nice to hear from the socilist party from away. The democrats in this country want to expand government to cover everybody from cradle to grave, by increasing taxes end fees on everyting from food to energy, not balance the budget or Cap spending. They give moneys to all other countries around the world who gladly take it then thumb there nose at us. You talk about the Tea Party which you know nothing about when it is obvious we need to get back to basic`s or we will be going BUST like Greese and a few other European Nations.To increase revenue in a capatilistic economy you need people to work wich generates spending and taxes not money handed out by big government,Because when the Government spends money it comes from revenue and the government does not generate revenue IT SPENDS IT, As for the rich who feel they don`t pay enough there is a box they can check off on ther tax return and pay more if they like. I do agree the tax code in this country needs to be modified but untill they do that it`s all we got for better oer worse. :angry: and by the way the 1% of the rich already pay 38% of the taxes the poor pay 0% but still have the same privalages

Edited by Raylan

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