Author`s name Dmitry Sudakov

The States to plunge into abyss of debt, off fiscal cliff

On October 17, the U.S. will reach the debt ceiling and will not be able to meet its financial obligations to creditors. That is the reality, and bypassing this reality by simply raising the ceiling is impossible. But since the authorities are unable to suggest another solution, the whole world will be watching the clash of interests of different political camps. 

Recently, the head of U.S. Treasury Jacob Lew wrote in a letter to congressional leaders said that in less than a month, the amount of available assets in the treasury would be twice as less than may be required for the execution of existing financial obligations during this period. He called the situation catastrophic. Lew said that his department was already taking "extraordinary measures" to repay the debt. These measures, as always, do not please everyone.

In particular, to release additional funds, payments to pension funds for civil servants have been suspended. In addition, Republicans plan not to allocate money for the Affordable Care Act, which is known as Obamacare, by analogy with Medicare. The head of the U.S. Treasury sees a way out in another move to raise the ceiling of the public debt of the United States.

This is not the first attempt to rescue the financial system. Since 2001, the limit has been raised 13 times already. The last one (the law about the fiscal cliff, approved by the U.S. Congress on the night of January 1, 2013), as we can see, did not last long. The national debt, evaluated in May of this year at 16.7 trillion dollars, according to the real time counter on, has already passed this mark and continues to grow at an average of $3.4 billion a day. At the moment, the amount of the total public debt exceeds GDP by approximately six percent.

Common residents already try to guess when the U.S. is finding itself in the situation similar to that in Greece, which neared default having its debt 1.5 times larger than GDP. Financiers tend to believe, though, that things are not so bad. According to them, the impending disaster is not so much economic as it is political. "This is an effect of uncertainty felt by consumers and businesses - Bernard Baumohl said, a leading expert on the global economy at Economic Outlook Group LLC (Princeton, NJ.) - Everyone is afraid to spend money until it becomes clear what is happening in Washington."

Back in August 2011, one of the three most influential companies in the field of financial analysis, Standard & Poor's, downgraded the U.S. credit rating (AAA, maximum reliability). The present situation is quite natural.

According to Time, default may occur between October 18 and November 5. If it happens, it will immediately trigger delays of social benefits for about two weeks. However, the Reason-Rupe poll, held in mid-September, showed that ordinary Americans were strongly opposed to the subsequent increase in the national debt. As many as 70 percent of the polled voted against it, whereas 55 percent of respondents are against the move to raise the limit, even if the government can no longer meet its financial obligations on time and in full, should the Congress decide not to raise the debt ceiling again.

Even if the government takes strong steps to reduce costs, only 45 percent of the polled said that they did not mind raising the debt limit. Two-thirds of respondents (63 percent) believe that the Congress does not pay attention to the opinion of voters when it comes to spending.

Of course, most respondents (76 percent) believe that the government spends too much money - 60 cents from every dollar that comes with taxes. The government spending should be cut by about a third. Noteworthy, only 35 percent agree with Republicans that costs should be reduced at the expense of the Affordable Care Act. Fifty-six percent of respondents were opposed to it.

What can be in store for the US in the event the country nears the financial cliff? First of all, a number of laws will be taken to raise taxes and reduce government spending to cut both the budget deficit and the national debt. The Office of Congressional Budget warned that in case of sudden changes in costs and taxes, a new round of recession is likely to occur, leading to negative consequences for economy.

It seems that the United States is facing the question of choice between two evils - default or another debt ceiling increase. Washington must decide that no later than in mid-October.

Irina Sabinina


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