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

Turkish Public Fears Jihadists More Than Kurds

Turkey facing twin threats of terrorism by Islamic State and PKK Kurdish separatists, says President Erdogan’s ruling AK Party More

Video One Year After Massacre, Iraq’s Yazidis a Broken People

Minority community still recovering from devastating assault by IS militants which spurred massive outrage More

‘Malvertisements’ Undermine Internet Trust

Hackers increasingly prey on users' trust of major websites to delivery malicious software More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Iraqi Yazidis Fear Death of Their Communityi
X
Sharon Behn
August 03, 2015 2:23 PM
A year ago on August 3, Islamic State militants stormed the homelands of Iraq’s Yazidi minority, killing hundreds of men and enslaving thousands of women. The scenes of desperate Yazidi families crowding on the top of Sinjar mountain without food or water spurred Kurdish fighters into action, an emergency airlift and the start of the U.S. airstrike campaign against the Islamic State Sunni extremists. VOA's Sharon Benh reports from northern Iraq.
Video

Video Iraqi Yazidis Fear Death of Their Community

A year ago on August 3, Islamic State militants stormed the homelands of Iraq’s Yazidi minority, killing hundreds of men and enslaving thousands of women. The scenes of desperate Yazidi families crowding on the top of Sinjar mountain without food or water spurred Kurdish fighters into action, an emergency airlift and the start of the U.S. airstrike campaign against the Islamic State Sunni extremists. VOA's Sharon Benh reports from northern Iraq.
Video

Video Bangkok Warned It Soon Could Be Submerged

Italy's Venice and America's New Orleans are not the only cities gradually submerging. The nearly ten million residents of the Bangkok urban area now must confront warnings the city could become uninhabitable in a few decades. VOA Correspondent Steve Herman reports from the Thai capital.
Video

Video Inclusive Gym Gets People With Disabilities in Fitness Spirit

Individuals with special needs are 58 percent more likely to be obese than the general population. According to the U.S. Centers for Disease Control, they also have an increased likelihood of anxiety, depression and social isolation. But a sports club outside Washington wants to make a difference in these people's lives. With Carol Pearson narrating, VOA's June Soh reports.
Video

Video Astronauts Train Underwater for Deep Space Missions

Manned deep space missions are still a long way off, but space agencies are already testing procedures, equipment and human stamina for operations in extreme environment conditions. Small groups of astronauts take turns in spending days in an underwater lab, off Florida’s southern coast, simulating future missions to some remote world. VOA’s George Putic reports.
Video

Video Special Olympics Show Competitors' Skill, Determination

Special Olympics competitions will wrap up Saturday in Los Angeles, and the closing ceremony for athletes with intellectual disabilities will be held Sunday night. In a week of competition, athletes have shown what they can do through skill and determination. VOA's Mike O'Sullivan reports.
Video

Video Civil Rights Leaders Struggled to Achieve Voting Rights Act

Fifty years ago, lawmakers approved, and U.S. President Lyndon Johnson signed, the Voting Rights Act of 1965. The measure outlawed racial discrimination in voting, giving millions of blacks in many parts of the southern United States federal enforcement of the right to vote. Correspondent Chris Simkins introduces us to some civil rights leaders who were on the front lines in the struggle for voting rights.
Video

Video Shooter’s Grill: Serving Food with a Touch of the Second Amendment

Shooter's Grill, a restaurant in Rifle, Colorado, attracts visitors from all over the world as well as local patrons. The reason? Waitresses openly carry loaded firearms as they serve food, and customers are welcome to carry them, too. VOA's Enming Liu and Lin Yang paid a visit to Shooter's Grill, and heard different opinions about this unique establishment.
Video

Video Despite Controversy, Business Owner Continues Sale of Confederate Flags

At Cooter’s, a store in rural Sperryville, Virginia, about 120 kilometers west of Washington, D.C., Confederate flags are flying off the shelves. The red, white and blue battle flag, with 13 white stars representing the Confederate states, was carried by southern forces during the U.S. Civil War in the 1860s. The South had seceded from the Union over several key issues of disagreement, including slavery. VOA’s Deborah Block has the story.
Video

Video Booming London Property a ‘Haven for Dirty Money’

Billions of dollars of so-called ‘dirty money’ from the proceeds of crime - especially from Russia - are being laundered through the London property market, according to anti-corruption activists. As Henry Ridgwell reports from the British capital, the government has pledged to crack down on the practice.
Video

Video Hometown of Boy Scouts of America Founder Reacts to Gay Leader Decision

Ottawa, Illinois, is the hometown of W.D. Boyce, who founded the Boy Scouts of America in 1910. In Ottawa, where Scouting remains an important part of the legacy of the community, the end of the organization's ban on openly gay adult leaders was seen as inevitable. VOA's Kane Farabaugh reports.

VOA Blogs