US economy on the brink

by David Taylor

The US government has until August the 2nd to raise the nation's $14 trillion debt ceiling. If it fails to win Republican support, and misses the deadline, the country faces a short-term default on its debt and a credit rating downgrade. In addition, we are likely to see US interest rates rise as the risk of US debt increases, and a sharp sell-off in the US dollar and other financial markets.

The US has two important dates after the August 2 deadline. The first comes a few days later when Treasury needs to fork up $90 billion for a debt payement, then again later in the month another $30 billion in interest payements. All up for the month of August, the US Treasury needs permission to dish out $500 billion in obligations.

Analysts say a last ditch attempt to save the economy may come from the President's right to exercise the 14th Ammendment. It states the US debt shall not be questioned. It would mean the US President would simply force the legislation through and raise the debt ceiling himself. That would likely result in several court challenges and controversy though - much of which the Democrats would want to avoid.

Next week is likely to be one for the history books.

David Taylor

Disclaimer

The content in my blog is non advisory, please do not interpret this as advice in any way shape or form. These are just my thoughts and nothing I say should be acted upon.