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Main » 2013 » October » 16 » U.S. default 2013. The causes and possible consequences.
U.S. default 2013. The causes and possible consequences.
U.S. Congress as of Wednesday morning, the budget has not reached a compromise and voted to raise the debt "ceiling" that, as the Finance Ministry warned, threatens the country with technical default since October 17, 2013.

WASHINGTON, Oct. 16 - RIA Novosti, Alexei Bogdanovsky. If something like this happens, the current situation is unprecedented, and its effects are not known precisely. However, there is no doubt that the results will be grim for the U.S. economy. It generates from the markets, politicians and observers hope to reach a compromise in the last hours.

When will default?

In the U.S., there is a "ceiling" of government debt, which exceed the Ministry of Finance may only with the permission of Congress. The current limit of 16.7 trillion was reached in May, and since then the Ministry of Finance took over the "extraordinary measures" not to exceed "ceiling". Finance Minister Jack Lew said that the ceiling would be exceeded if, before the expiration of October 17 has been received congressional authorization for new borrowing.

After that, at the disposal of the finance department will cash (about $ 30 billion) and the daily tax revenue. Lew has to take a word: what "extraordinary" measures in question and why can borrow is exhausted on October 17, the Ministry of Finance does not explain. Similarly, U.S. officials did not say what plans they had prepared in case of inability to pay its debts.

Although the absence of a compromise America can not pay its bills this week, technically the time of default may occur much later. Actually defaulted on the bonds will come when the U.S. will not be able to pay the interest on its debt. Nearest such payments to be held on October 31, when the U.S. to pay $ 6 billion in the form of interest - this is a relatively small amount. If the United States will make the payment of the foreign debt priority, technical default may not come for weeks. But President Barack Obama said the White House lawyers believe such a prioritization illegal. Obama has also threatened to veto the proposal of the Congress only pay for urgent bills. In fact, besides the external debt, the U.S. has domestic obligations: only 1 November will have to pay $ 60 billion to sotsprogrammy, pensions and wages war. Can suffer many millions of Americans.

Obama also rejected other possible ways out of the situation, in particular the use of the 14th Amendment to the Constitution, which states that the U.S. debt "shall not be questioned." Another exotic option - to resort to the issue of dollars, for example, to mint a coin denominations of $ 1 trillion, which does not require parliamentary approval. However, President Obama believes that his powers do not allow to bypass Congress, 77 times increased the debt limit, but until now it is unable to do so because of internal contradictions.

What will happen to the American economy?

If the U.S. will not be able to pay any significant part of its debt, it will cause a sharp rise in interest rates on Treasury bonds at first, and then for all loans in the United States. Financial markets collapse, and with them will be reduced and assets of Americans. Banks again stop giving loans because of the uncertainty of the situation, or will require a much higher percentage. In this case, a new financial crisis along the lines of 2008, and, perhaps more serious, imminent.

Without the ability to borrow money, the state will have to spend only what is collected in taxes - according to Congressional Budget Office estimates, spending cuts amount to 32%. Investment bank Goldman Sachs has estimated that by the end of November, forced spending cuts amount to $ 175 billion, or 1% of GDP, against a background of the current federal budget sequestration.

Здание Конгресса США, 30 сентября
© REUTERS / James Lawler Duggan
According to the calculations supporting the Democrats Nobel Prize-winning economist Paul Krugman, in the short term, the direct cost savings of 4% of GDP, with the use of traditional animators recession is calculated as 6%. In fact, according to Krugman, the reduction in income and spending growth will require continuous additional cutting spending, so that America will face a 10-percent decline in GDP growth and unemployment rate by 5 percentage points. Such a scenario of events in the world's largest economy will certainly cause a new global recession, which in its scope could surpass the crisis of 2008.

Were there precedents?

Even a temporary inability to pay its debts hit hard by U.S. credit - a country which is considered one of the safest borrowers in the world. The United States are proud of their credit history that have always paid its debts, and the fact that the dollar has never been subjected to the denomination. However, in the history of the United States were the two episodes (in 1790 and in 1933), when the government failed to pay its debts in full, but not defaulted in the technical sense of the term. In both cases, investors in U.S. securities forced to agree to the payment of the debt at a discount.

Another rare historical incident shows that even a minimal delay in the payment of debt threatens U.S. disproportionately large damage. In 1979, the United States due to a technical error defaulted on the bonds for 122 million dollars (this is only one hundred percent of the total amount of the then $ 800 billion in debt). But the cost of borrowing in the year increased by 0.6%, or $ 6 billion.

The debt crisis of 2011, when the United States from possible default separated for two days, has raised the cost of borrowing by 0.5%, or $ 1.3 billion - a relatively small amount, underlining the reliability of U.S. debt and yet the continued dominance of the dollar as the world reserve currency . However, in the event that markets do not have time to get scared of default, as until recently had hoped to reach a political compromise. This hope is saved now - financial markets are relatively calm, waiting for disaster is not observed. However, the closer the U.S. approach to a dangerous point, the greater the likelihood of uncontrolled development of events that can lead to unpredictable consequences for America and for the world economy.
Category: Economic crises | Views: 1007 | Added by: Andrey-Andreev | Tags: economic forecast, U.S. default 2013, the global economic crisis, U.S. default | Rating: 0.0/0
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