World News

US Warns of 'Catastrophic' Effect If It Defaults

The U.S. Treasury is warning there could be "catastrophic" economic effects worldwide if Congress does not increase the country's borrowing limit in the coming days so the United States does not default on its financial obligations.

As the U.S. approaches its current $16.7 trillion debt ceiling, the Treasury issued a report Thursday outlining the calamity it says could occur if it runs out of money to pay the country's bills, including interest on money the U.S. has borrowed overseas.

"A default would be unprecedented," Treasury said, "and has the potential to be catastrophic: credit markets could freeze, the value of the dollar could plummet, U.S. interest rates could skyrocket, the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse."

The country's government is already in the third day of a partial shutdown in a spending impasse between President Barack Obama, a Democrat, and his Republican opponents in Congress. Mr. Obama said Congress needs to act quickly to avert a new crisis over the debt ceiling, which the country could reach on October 17.



"You know the United States is the center of the world economy. So, if we screw up, everybody gets screwed up. The whole world will have problems, which is why generally nobody has ever thought to actually threaten not to pay our bills. It would be the height of irresponsibility."



Mr. Obama and Speaker John Boehner, leader of the Republican-controlled House, are locked in a stalemate over government spending priorities. But Boehner has been telling Republican colleagues in recent days that he will do whatever is necessary to avoid a default, even if he needs votes from Democratic lawmakers to help raise the borrowing limit.

The U.S. and Denmark are the only democratic countries in the world that have imposed a debt ceiling, with other nations choosing to borrow what they need to finance their operations without a prescribed limitation. A business professor at the University of Michigan, Erik Gordon, told VOA that the U.S. has attempted, without much success, to curb its spending.



"It can't discipline itself without spending money. It spends money like a drunken sailor. So Congress imposed a debt ceiling in an attempt to impose some discipline on itself, by saying, you can spend money, but not so much that you breach this ceiling."



The U.S. debt ceiling has been increased more than 100 times in the last century, sometimes rather routinely, other times after extended debate, with lawmakers from the political party that does not control the White House often accusing the country's leader of reckless spending.

Mr. Obama now says he wants Congress to increase the borrowing limit without negotiating over the country's spending and taxation policies with his Republican opponents. But as a U.S. senator, Mr. Obama voted against an increase in the debt ceiling when a Republican, George W. Bush, was president.

The chief executive of the huge U.S. investment bank Goldman Sachs, Lloyd Blankfein, met with Mr. Obama at the White House this week along with other key banking executives. Blankfein said it is imperative that the United States does not default on its financial obligations.



"There's precedent for a government shutdown. There's no precedent for default. We're the most important economy in the world. We're the reserve currency in the world. Payments have to go out to people - if money doesn't flow in, then money doesn't flow out. So we really haven't seen this before, and I'm not anxious to be a part of the process that witnesses it."



Michigan business professor Gordon says no one knows what would happen if the U.S. were to run out of money to pay its bills and the debt ceiling is not increased.



"Nobody knows what will happen if it's actually breached, because it's never come to that. But the fear is that it will destroy the country's status as the safe harbor for investments, that you won't know whether your U.S. government bonds will be paid on time or not. That's virtually unthinkable."



He said even the threat of the U.S. defaulting would have "huge effects worldwide" on investors' confidence in the government's securities.

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Poverty, Ignorance Force Underage Girls Into Marriagei
X
May 21, 2015 4:14 AM
The recent marriage of a 17-year old Chechen girl to a local police chief who was 30 years older and already had a wife caused an outcry in Russia and beyond. The bride was reportedly forced to marry and her parents were intimidated into giving their consent. The union spotlighted yet again the plight of many underage girls in developing countries. Zlatica Hoke reports poverty, ignorance and fear are behind the practice, especially in Asia and Africa.
Video

Video Poverty, Ignorance Force Underage Girls Into Marriage

The recent marriage of a 17-year old Chechen girl to a local police chief who was 30 years older and already had a wife caused an outcry in Russia and beyond. The bride was reportedly forced to marry and her parents were intimidated into giving their consent. The union spotlighted yet again the plight of many underage girls in developing countries. Zlatica Hoke reports poverty, ignorance and fear are behind the practice, especially in Asia and Africa.
Video

Video South Korea Marks Gwangju Uprising Anniversary

South Korea this week marked the 35th anniversary of a protest that turned deadly. The Gwangju Uprising is credited with starting the country’s democratic revolution after it was violently quelled by South Korea’s former military rulers. But as Jason Strother reports, some observers worry that democracy has recently been eroded.
Video

Video California’s Water System Not Created To Handle Current Drought

The drought in California is moving into its fourth year. While the state's governor is mandating a reduction in urban water use, most of the water used in California is for agriculture. But both city dwellers and farmers are feeling the impact of the drought. Some experts say the state’s water system was not created to handle long periods of drought. Elizabeth Lee reports from Ventura County, an agricultural region just northwest of Los Angeles.
Video

Video How to Clone a Mammoth: The Science of De-Extinction

An international team of scientists has sequenced the complete genome of the woolly mammoth. Led by the Swedish Museum of Natural History in Stockholm, the work opens the door to recreate the huge herbivore, which last roamed the Earth 4,000 years ago. VOA’s Rosanne Skirble considers the science of de-extinction and its place on the planet
Video

Video Blind Boy Defines His Life with Music

Cole Moran was born blind. He also has cognitive delays and other birth defects. He has to learn everything by ear. Nevertheless, the 12-year-old has had an insatiable love for music since he was born. VOA’s June Soh introduces us to the young phenomenal harmonica player.
Video

Video Women to March for Peace Between Koreas

Prominent female activists from around the world plan to march through the demilitarized zone dividing North and South Korea to call for peace between the two neighbors, divided for more than 60 years. The event, taking place May 24, marks the International Women's Day for Peace and Disarmament and has been approved by both Koreas. Zlatica Hoke has more.
Video

Video Drug Use Rises in Afghanistan Following Record High Poppy Crops

Afghanistan has seen record high poppy crops during the last few years - and the result has been an alarming rise in illegal drug use and addiction in the war-torn country. VOA's Ayesha Tanzeem has this report from Kabul.
Video

Video America’s Front Lawn Gets Overhaul

America’s front yard is getting a much-needed overhaul. Almost two kilometers of lawn stretch from the U.S. Capitol to the Washington Monument. But the expanse of grass known as the National Mall has taken a beating over the years. Now workers are in the middle of restoring the lush, green carpet that fronts some of Washington’s best-known sights. VOA’s Steve Baragona took a look.

VOA Blogs