Will budget deadlock trigger global financial Armageddon? How US defaulting on its payments could shake the world

Wednesday, October 2, 2013
By Paul Martin

U.S. government shutdown lingers on as Congress fails to agree budget
Fears grow that infighting will prevent agreement on raising the debt level
America is expected to reach its legal debt limit of $16.7trn on October 17
Economist says default ‘would be Lehman Brothers to power of thousand’

2 October 2013

World stock markets began to shake today in response to a U.S. government shutdown that shows no signs of ending soon – and could pave the way for a much more devastating default.
Investors have generally taken the view that the first such shutdown in 17 years would prove temporary, but there are growing worries about its implications for talks on raising the U.S. public debt ceiling later this month.

While the shutdown would have to drag on to have a substantial effect on the United States economy, a failure to raise the debt ceiling carries the threat of a government default on its debt with wide and unpredictable consequences.

America has a legal limit on its borrowing of $16.7trillion dollars, which is predicted to reach that level on October 17.

But with Congress failing to agree a budget, there are fears it may also fail to agree an increase on its debt limit by the deadline.

Iwan Morgan, a Professor of U.S. Studies and Commonwealth Fund Professor of American History at University College London, told CNN: ‘All this may look like a local infighting, but the possible consequences could be global in scope if the stand-off continues until mid-October, when the U.S. is scheduled to raise its debt limit.

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