US debt has hit the fan! As the debt talks continue in Washington, Moody's has thrown a spanner in the works by flagging a possible downgrade of the US government's bond rating.
The Wall Street Journal reports that Moody's will pull the pin if they fail to reach a deal before the deadline next month. The Tea Party Republicans oppose raising the debt ceiling, Obama is trying to stare them down. The US Government hit the ceiling on May 16. Economists expect it will run out of funds by August 2. If a decision is not made by then, it won't be able to raise funds to pay its bills and that will send shockwaves through the global economy.
Still, a default is unlikely to happen, the US Treasury has simply said it's not an option. Republicans have demanded steeper cuts in federal spending. Obama has agreed to reductions, but he wants to end Bush-era tax cuts for the rich. The Tea Party Republicans aren't budging. The Moody's announcement will put pressure on everyone to strike a deal.
But the bigger worry is where this will leave the US economy in the long run. Structurally, nothing has changed since the financial meltdown. Unemployment remains high, the economy continues to tank, businesses are shutting down and the US government continues to rack up debts. We are likely to see all this happening again in five years time.
no comment untill now