While the US is running out of time to deal with its debt crisis, a Business Insider website reporter Zeke Miller believes that the impact on the US and the global economy really depends on what the credit agencies do.
“We heard from Moody’s on Wednesday and from SP yesterday, both warning of severe consequences if the government doesn’t raise the debt ceiling in time, including the possible downgrade from the government’s triple-A rating,” he said. “And that increases borrowing costs not just for the federal government, but for 7,000 municipalities across the country.”
“If the August 2 deadline passes without a debt ceiling increase, the government will shut down but it will not necessarily default right away,” he added. “They have the money to last themselves a few weeks.”
With all that at stake it is likely the lawmakers will reach an agreement. The question is just how significant the deficit reduction measures will be.
“SP said yesterday they want $4 trillion in cuts over 10 years in order for them to maintain the triple-A rating,” Miller explained.
The Republicans want spending cuts, while the Democrats want tax rises, but the American public wants a compromise solution.
“The Americans want to see a balanced approach,” he said. “They want to see a fair plan.”
The investors are also pushing the government to solve the deficit problem.
“Three hundred business leaders wrote a letter to US government leaders saying ‘you have to reach a deal on this debt ceiling increase but you also have to cut the deficit’,” Miller said. “They are saying that it is bad for their businesses.”
Zeke Miller does not believe the EU countries or any other countries should try and solve their debt problems using the US as a role model.
“I don’t think anybody thinks the United States is getting away with this any longer,” he said. “They have sort of reached the point where everybody in both parties agrees that the debt is just too high and they can’t borrow anymore.”
“You can’t be borrowing for annual expenditures, it is not a sustainable model for any country,” he added. “There are no fundamental issues with the system. It’s just the magnitude that sets it apart.”
Economic analyst Dr. Roger Von Hanwehr believes the chances are quite high that the agreement will not be reached by the deadline, as it is “a very tough pill for American politicians to swallow and to articulate to the constituencies.”
“Neither side wants to bite the hard bullet,” he said, “realizing that there is an inadequate wage base for raising taxes and that costs need to be cut in a manner that is equivalent to the rise in a debt ceiling.”