News / USA

US Debt Default Would Have Global Impact, Experts Say

US Debt Default Would Have Global Impacti
X
October 09, 2013 3:19 PM
With the U.S. government shutdown in its second week and the possibility of an American debt default next week, the global economy is beginning to feel the effects. VOA’s Al Pessin reports from London.

"US Debt Default Would Have Global Impact" - related video report by Al Pessin

Al Pessin
— With the U.S. government shutdown in its second week and the possibility of an American debt default next week, the global economy is beginning to feel the effects.

The action, or lack of action, on the U.S. government’s funding crisis is in Washington, but concern about it spans the globe.  One financial market indicator known as the "fear index" jumped 15% on Monday alone.

But while the headlines look ominous, London-based Wall Street Journal reporter Charles Forelle noted that global markets have so far not had the strong negative reaction some had expected.

“If there’s an apocalypse on the horizon, the financial markets don’t see it coming,” he said.

Global markets have been drifting lower, but have not fallen dramatically.  Still, Forelle warned the enthusiasm over investing will change dramatically if the shutdown continues, and especially if the U.S. government defaults on its debt.

“The other longer, bigger scale issue is the destruction of confidence in the U.S. government and in U.S. treasuries [securities].  And that’s a much more difficult thing both to measure and to fix,” Forelle said.

The US debt limit:

  • Is the total amount of money the US government can borrow to meet existing legal obligations
  • Obligations include Social Security, Medicare, military salaries, interest on the national debt, tax refunds
  • Raising the debt limit does not authorize new spending commitments
  • Failing to increase the debt limit would cause the government to default on its legal obligations
  • Since 1960, Congress has acted to raise the debt limit 78 times

Source: US Department of Treasury
Such concerns are keenly felt in places like this, the hub of operations at the London investment firm Charles Stanley and Company.  Its chief investment commentator, Garry White, said the room will look very different next week if there is a default.

“Phones would be ringing off the hook," White predicted.  "There would be panic selling as investors tried to minimize their losses.  And it would be mass panic in the investment community.”

Experts say if Congress does not raise the debt ceiling and allow the government to continue routine payments, there would be a cascade of defaults worldwide, and financial institutions would not know how to set some of their key interest rates.  They say the financial collapse of five years ago that hurt people around the world would be repeated, and could possibly be worse.

White said that prospect could just be enough to motivate the politicians in Washington to settle their differences.

“One would hope that the consequences are so serious that they will sort it out before the deadline arrives. And we think it’s in the interest of people on both sides to resolve this issue before there is some sort of financial Armageddon,” he said.

No one in Washington wants that.  But concern is growing about whether the officials involved will do what is necessary to avoid it.

You May Like

Video On the Scene: In Gaza, Darkness Brings Dread and Death

Palestinians fear nighttime raids, many feel abandoned by outside world, VOA's Scott Bobb reports More

African Small Farmers Could Be Key to Ending Food Insecurity

Experts say providing access to microloans, crop insurance, better storage facilities, irrigation, road systems and market information could enable greater production More

University of Michigan Wins Solar Car Race

Squad guided its student-designed solar-powered vehicle to fifth consecutive time victory in eight-day bi-annual American Solar Challenge More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Gazans in Shelled School Sought Shelteri
X
Scott Bobb
July 30, 2014 8:16 PM
Israel's air and ground assault against Hamas-led fighters in Gaza has forced many Palestinians to flee their homes, seeking safety. But safe places are hard to find, as VOA’s Scott Bobb reports from Jabaliya.
Video

Video Gazans in Shelled School Sought Shelter

Israel's air and ground assault against Hamas-led fighters in Gaza has forced many Palestinians to flee their homes, seeking safety. But safe places are hard to find, as VOA’s Scott Bobb reports from Jabaliya.
Video

Video Rapid Spread of Ebola in West Africa Prompts Global Alert

Across West Africa, health officials are struggling to keep up with what the World Health Organization describes as the worst ebola outbreak on record. The virus has killed hundreds of people this year. U.S. President Barack Obama and other world leaders are watching the developments closely as they weigh what actions, if any, are needed to help contain the disease.
Video

Video Michelle Obama: Young Africans Need to Embrace Women's Rights

U.S. first lady Michelle Obama urged some of Africa's best and brightest to advocate for women's rights in their home countries. As VOA's Pam Dockins explains, Obama spoke to some 500 participants of the Young African Leaders Initiative, a six-week U.S.-based training and development program.
Video

Video Immigrant Influx on Texas Border Heats Up Political Debate

Immigrants from Central America continue to cross the U.S.-Mexico border in south Texas, seeking asylum in the United States, as officials grapple with ways to deal with the problem and provide shelter for thousands of minors among the illegal border crossers. As VOA's Greg Flakus reports from Houston, the issue is complicated by internal U.S. politics and U.S. relations with the troubled nations that immigrants are fleeing.
Video

Video Study: Latino Students Most Segregated in California

Even though legal school segregation ended in the United States 60 years ago, one study finds segregation still occurs in the U.S. based on income and race. The University of California Los Angeles Civil Rights Project finds that students in California are more segregated by race than ever before, especially Latinos. Elizabeth Lee reports for VOA from Los Angeles.
Video

Video Vietnamese Staging Chinese Product Boycott After Oil Rig Spat

China recently pulled an oil rig from an area of the disputed South China Sea that Vietnam also claims. Despite the action, the incident has had a lingering effect on consumers in Vietnam. VOA's Reasey Poch reports from Hanoi on an effort to boycott Chinese products.
Video

Video A Summer Camp for All the World

VIDEO: During workshops and social gatherings, the Global Youth Village summer camp encourages young people to cooperate and embrace their differences, while learning to communicate with people from other countries. VOA's Deborah Block has more.
Video

Video From Cantankerous Warlock to Incorruptible Priest, 'Harry Potter' Actor Embraces Diverse Roles

He’s perhaps best known as Mad Eye Moody, the whimsical wizard in the Harry Potter franchise. But character actor Brendan Gleeson's resume includes dozens of films, and he embraces all the characters he inhabits with equal passion. In an interview with VOA’s Penelope Poulou, Gleeson discussed his new drama "Calvary" and his secret to success.

AppleAndroid