US debt ceiling.

[the_bob_delusion]

can someone explain it to me in simple terms. I'm really dense when it comes to global economy.

[acacia_pycnantha]

Hi Bob. I think it goes something like this.

The USA has a debt ceiling of about $17.6 trillion and even so, they need to borrow more but cannot lift the legislated ceiling limit without the approval of US Congress. Their Republican party (along with the so-called tea party), the right wing of politics will continue to block passage of the necessary legislation unless,

Unless big changes (de-funding changes) are made to pres Obama's healthcare bill which was recently passed into law.

They also want other guarantees or reduced govt spending.

it amounts to rich Republicans blocking a Bill which would provide affordable health care to the poor.

Clear now?

thought not. 😉

[acacia_pycnantha]

Of course, if the USA reduced their military spending (foriegn wars and threats of more to come) and if they had a fair income tax system, then they wouldn't have nearly as big a debt in the first place.

[icyfroth]

Looks like no-one has a clue, Bob

Here's what I've got out of it:

Mr Obama wants to borrow more money to fund his healthcare reforms.

The Tea Party and the Republicans don't want to be in it. Too much debt already.

China and Japan are getting nervous because they are huge lenders to the US and are scared of the US defaulting.

The US is in danger of getting it's AAA credit rating downgraded.

If the US can't resolve it's finances it looks grim for the rest of us.

Greece is facing it's 3rd bailout.

Not happy Jan!

[acacia_pycnantha]

if the Congressional impasse persists into tomorrow, then the US will not be able to service (make repayments on) their existing debts, running the risk of plunging many of the worlds' countries into recession.

[kopenhagen5]

Thursday (17 October) is a critical day for the markets, because if the US government does not manage to increase the debt ceiling, then the chances of a default by the US government increase. With a fractious Congress, a debt ceiling crisis may not be resolved by Thursday. So far markets are not even factoring in such a possibility, but if this happens, the world markets are in for a lot of turbulence. 

The US Treasury has a debt ceiling of $16.7 trillion, which it hit on May 19, 2013, and since then the US government has been using various methods to make payments and issue debt papers. Lawmakers need to arrive at an agreement and hike this ceiling if the US government has to pay salaries. If the debt ceiling is not increased by October 17, then the US could default on these payments and interest commitments. The Economist says that even though the US Treasury has $30 billion in cash, it will still struggle to make large payments, which are coming up. On October 23, $12 billion in payments are coming up for Social Security and $6 billion as interest payout on its debt on 31 October. Apart from this, it will need another $67 billion to pay salaries of bureaucrats and soldiers. Citigroup on the other hand believes that the real deadline for a settlement is 1 November. 

Most market experts believe that a quick resolution is difficult and if the US defaults technically or delays payments, then the markets would question the political stability and dollar's status as a reserve currency. According to Robert V DiClemente at Citi Global Ecoonmics Research, says: "If US creditworthiness and political stability are questioned because of sequential technical defaults stemming from political dysfunction, global investors may want to shift to alternative currencies." Also if a debt ceiling is not raised and budget cuts continue, then the US could be headed for a prolonged period of economic weakness, which would have a cascading effect across the globe. Other turmoil in the currency markets, the great rotation to US bonds, which had started some time early this year, may also come under pressure as unwinding may begin in a relatively tighter liquidity conditions. 

[the_bob_delusion]

---

@icyfroth wrote:

Looks like no-one has a clue, Bob

Here's what I've got out of it:

Mr Obama wants to borrow more money to fund his healthcare reforms.

The Tea Party and the Republicans don't want to be in it. Too much debt already.

China and Japan are getting nervous because they are huge lenders to the US and are scared of the US defaulting.

The US is in danger of getting it's AAA credit rating downgraded.

If the US can't resolve it's finances it looks grim for the rest of us.

Greece is facing it's 3rd bailout.

Not happy Jan!

---

that's a reasonable explanation. I didn't realise China and Japan lends them that much money.  So it's a self imposed debt limit is it? 

I didn't realise countries had credit ratings. 

So how does their finances affect ours?

[acacia_pycnantha]

It's not a very reasonable explanation at all. It's only a part of the story. (see above my previous posts and kopenhagen's if you want reason)

[cherry*135]

The US caused the global financial crisis in 2008, bob.

The current financial crisis  (2008)started in the US housing market in 2007. The crisis spread across the world and
severely damaged the economies of many countries, including the US, and reached a new level in September 2008 as a number of prominent US-based financial institutions, including AIG and Lehman Brothers, collapsed.

[cherry*135]

In a financial crisis the US buys a lot less products from China, China stops manufacturing so much stuff therefore doesn't need to buy as much coal from Aust... and so it goes on.