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.
Colombians Flee Venezuela as Border Crisis Escalatesi
X
August 27, 2015 2:08 AM
Hundreds of Colombians have fled Venezuela since last week, amid an escalating border crisis between the two countries. Last week, Venezuelan President Nicolas Maduro ordered the closure of a key border crossing after smugglers injured three Venezuelan soldiers and a civilian. The president also ordered the deportation of Colombians who are in Venezuela illegally. Zlatica Hoke reports.
Video

Video Colombians Flee Venezuela as Border Crisis Escalates

Hundreds of Colombians have fled Venezuela since last week, amid an escalating border crisis between the two countries. Last week, Venezuelan President Nicolas Maduro ordered the closure of a key border crossing after smugglers injured three Venezuelan soldiers and a civilian. The president also ordered the deportation of Colombians who are in Venezuela illegally. Zlatica Hoke reports.
Video

Video Is China's Economic Data Accurate?

Some investors say China's wild stock market gyrations have been made worse by worries about the reliability of that nation's economic data. And some critics say the reports can mislead investors by painting an unrealistically-strong picture of the economy. A key China scholar says Beijing is not fudging ((manipulating)) the numbers, but that the economy is evolving quickly from smoke-stack industries to services, and the ways of tracking new economic activity are falling behind the change. V
Video

Video Next to Iran, Climate at Forefront of Obama Agenda

President Barack Obama this week announced new initiatives aimed at making it easier for Americans to access renewable energy sources such as solar and wind. Obama is not slowing down when it comes to pushing through climate change measures, an issue he says is the greatest threat to the country’s national security. VOA correspondent Aru Pande has more from the White House.
Video

Video Shipping Containers Provide Experimental Housing

Housing prices around the San Francisco Bay area are out of reach for many people, so some young entrepreneurs, artists and tech industry workers are creating their own houses using converted shipping containers. But as VOA's Mike O’Sullivan reports from Oakland, the effort requires ingenuity and dealing with restrictive local laws.
Video

Video Arctic Draws International Competition for Oil

A new geopolitical “Great Game” is underway in earth’s northernmost region, the Arctic, where Russia has claimed a large area for resource development and President Barack Obama recently approved Shell Oil Company’s test-drilling project in an area under U.S. control. Greg Flakus reports.
Video

Video Philippine Maritime Police: Chinese Fishermen a Threat to Country’s Security

China and the Philippines both claim maritime rights in the South China Sea.  That includes the right to fish in those waters. Jason Strother reports on how the Philippines is catching Chinese nationals it says are illegal poachers. He has the story from Palawan province.
Video

Video Technique May Eliminate Drill-and-Fill Dental Care

Many people dread visiting dentists because they're afraid of drills. Now, however, a technology developed by a British firm promises to eliminate the need for mechanical cleaning of dental cavities by speeding a natural process of tooth repair. VOA’s George Putic reports.
Video

Video China's Spratly Island Building Said to Light Up the Night 'Like A City'

Southeast Asian countries claim China has illegally seized territory in the Spratly islands. It is especially a concern for a Philippine mayor who says Beijing is occupying parts of his municipality. Jason Strother reports from the capital of Palawan province, Puerto Princesa.
Video

Video Ages-old Ice Reveals Secrets of Climate Change

Ice caps don't just exist at the world's poles. There are also tropical ice caps, and the largest sits atop the Peruvian Andes - but it is melting, quickly, and may be gone within the next 20 years. George Putic reports scientists are now rushing to take samples to get at the valuable information about climate change locked in the ice.
Video

Video French Experiment in Integrating Roma Under Threat

Plans to destroy France’s oldest slum have sparked an outcry on the part of its Roma residents. As Lisa Bryant reports from the Paris suburb of La Courneuve, rights groups argue the community is a fledgling experiment on integrating Roma who are often outcasts in many parts of Europe.
Video

Video Kenyans Turn to Agriculture for Business

Each year Kenyan universities continue to churn out graduates for the job market despite the already existing high rate of unemployment among youth in the country. Some of these young men and women have realized that agriculture can be as rewarding as any other business or job, and they are resorting to agribusiness in large numbers as a way of tackling unemployment. Rael Ombuor reports for VOA.
Video

Video First Women Graduate Elite Army Ranger School

Two women are making history for the U.S. Army by proving they are among the toughest of the tough. VOA's Carla Babb reports from Fort Benning, Georgia as 94 men and those two women rise as graduates of the difficult Ranger school.

VOA Blogs