US set to narrowly avert debt default

MNB

After prolonged and heated debates, Washington lawmakers may yet evade catastrophic debt limit default set for August 2 by forging their varied opinions into what US President Barack Obama has called “not the greatest deal” but “a good down payment.”

The current negotiations have aimed at raising the US debt limit from the current $14.3 trillion ceiling by an estimated $2.4 trillion. Without an agreement, the US faces the possibility of default on the repayment of its loans for the first time in history. A default could see the credit rating downgrade from the top-notch “AAA.” A downgrade would raise interest rates for borrowers and deal a devastating blow to the already lethargic US economy as well as to the dollar as a global currency.

The world economy has been hinged on the outcome of the Washington debates, as the result will have global effects. The importance of this pivotal decision is balanced in the hands of politicians in Washington who are have been dueling for their preferred budget cuts for months. The proposed plan as is will reduce the US deficit by $2.4 trillion (an equal level to the increase in debt allowance) during the next ten years –  the law is approved on late Monday voting sessions. 

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The slow debates in Washington have sparked global alarm, inciting comments that the US is playing a reckless game with the world economy. Pushing the decision to the final August 2 date when the US would effectively run out of cash to pay its bills. Global markets have been stormy, culminating in the DJIA biggest one-week losses in over a year on Friday July 29, but have seen reprieve as news of a deal has transpired.

The threat of defaulting on debt repayment was revealed to Congress by Secretary of Treasury Timothy Geithner in January. Lawmakers went to action, but have been criticized heavily for the slow speed and lacking inability to form a deal. The partisan divides continued up until Sunday when a promising incarnation was proposed, however, there is no guarantee.

The threat of a late Monday filibuster could still spell death to the current proposal, making debt default an impending reality. The imminence of the Washington decision is clear, and time is short to sort out the predicament and calm the world’s economic waters.

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