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U.S. Bankruptcy: Fantasy or Reality?
This fall the U.S. government can follow Detroit and declare bankruptcy but this time it can touch the whole country. Officially, the US national debt stands at $16.7 trillion, including nearly $12 million in debt held by the public in the form of Treasury Bonds. According to an influential University of California economist, the national debt is more than $86.8 trillion.
Practically every month some country is the world goes bankrupt, officially announcing its financial insolvency and the complete exhaustion of its reserves. It can be poor countries, emerging economies or tranquil state of the southern hemisphere.
Even Great Britain was a bankrupt after the Second World War. USA gave it a credit of $ 4.3 billion in 1945 to help the country get back on its feet. This loan was then twice as much as the entire British economy and it was fully returned in 2006, when the last payment of $ 84 million has closed the English debt.
The US Congress is not in panic moods now but it appears that this fall in its walls will be a serious battle between President Barack Obama and Republican majority.
Obama’s administration must urgently find a way to prevent bankruptcy before October 1 and in November it has obtain a consent to raise the government debt ceiling.
If this will not happen, then in November the U.S. has a second “chance” to declare state’s bankruptcy, because they need to acknowledge payment default that will hurt the U.S. economy. This will lead markets, including Forex market, to a big confusion and panic.
Republicans, who now control the House of Representatives, will insist on their vision and they also have some levers of influence on Obama.
But in the end still there are only two options: either the United States declares that there is no more money and go bankrupt, or Obama gets what he needs - raising the debt ceiling that will lead the country to the tough economic measures. In any case, the future looks far from rosy, according to different economists.
It should be remembered that the last debate in the Congress on the national debt ended up with a very controversial result: higher taxes for the rich people, a core constituency of the Republicans. In 2011, the battle for the debt ceiling also ended by downgrading the U.S. credit rating by some agencies.
Also, in October kicks off Obama's health care reform. It needs a huge amount of money for which the president will have to “fight” with Congress.
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| Graphics: US National Debt figures |
