US Debt Default, and Debt Ceiling!

US Debt Default, and Debt Ceiling!
Should we worry about that?

“In finance, default is failure to meet the legal obligations of a loan, for example when a home buyer fails to make a mortgage payment, or when a corporation or government fails to pay a bond that has reached maturity.” Wikipedia

“The United States debt ceiling or debt limit is a legislative limit on the amount of national debt that can be incurred by the U.S. Treasury, thus limiting how much money the federal government may pay on the debt they already borrowed.” Wikipedia

One of the risks that in the last days affected the markets is the uncertainty about the US debt limit and FED Debt default! There are many talks that if US lawmakers do not increase the federal borrowing limit, the Treasury Department is unable to meet its obligations and it will end with a global financial crisis that the US will not be able to confront.

Treasury secretary, Mrs. Janet Yellen has warned several times in past days that a failure to obey these obligations can cause a “catastrophe”, igniting a painful economic recession that will disastrous financial collapse because it will sharply increase the borrowing costs and it will hit the US families and businesses.

Earlier this week on Monday, Chuck Schumer, the Senate majority leader asked the Democratic to deliver a bill to raise the debt ceiling, however, since Republicans had some issues about this bill and some other democratic economic plans, uncertainty about the passing of the bill was hitting the markets.

In fact, if it happens and we face the debt default, it will be so harmful to the economy, and as Washington told can even cause a crisis, however, we have some reasons to not be a worry. First of all, we should not forget that we are so close to the next election and none of these parties want to be known as the cause of this problem. On the other hand, if we look at the disagreements between Republicans and Democrats, we can see it is not about the Government Debt limit, they have disagreements about the other subjects and using it as a lever to put more pressure on each other.

After all these conflicts, we had some reports that finally lawmakers getting close to the potential breakthrough on the debt ceiling. It seems that Mitch McConnell’s offers to extend the government’s borrowing limit until December is accepted by the majority. Last night Chuck Schumer told that “We’re making good progress. We’re not there yet. But I hope we can agree tomorrow morning,”

However, any short-term deal still needs to be negotiated, and even the agreement would merely just postpone the threat to global financial markets and the US economy for a few months, but will decrease the market risk and will create more time and opportunities for both parties to get to some points for a long-term solution.

Related post