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    US debt ceiling

    Fatih Özatay, PhD27 April 2013 - Okunma Sayısı: 1184

    It is estimated that the Treasury will need a new raise in the limit by 19 May 2013, which means that the Republican and Democratic parties will have to reconcile once again.

    Soon a well-known problem will come back to the fore. The acquaintance dates back to 2011 when the entire world first mingled with the US Treasury’s debt ceiling issue. The US has legislative restrictions on debt since 1917. The ceiling was raised seventy times since then. In 2 August 2011, it was realized that the Treasury’s debt will hit the ceiling. This was a problem not only for the US Treasury: the head trauma was expected to affect the entire world. The ceiling, if not raised, would hinder budget payments, especially pensions, social security allowances and interest on borrowing. The US economy would in a sense go into debt default. It was feared that such turbulence in the US would drag the entire world alongside. Furthermore, EU economy, second largest of the world, was running towards economic contraction. The world was in enough trouble and did not need the US contraction on top of it.

    The US Congress where President Obama’s Democratic Party does not have the majority has the call for raising the ceiling. For months, the Democrat Party and the Republican Party clashed over the debt ceiling issue. The division led to new uncertainties, escalating the risk perception Europe caused. Fortunately, the parties reached a consensus on 31 July 2011 and decided to gradually raise the debt ceiling. With this decision was solved the problem which could give a head trauma to the entire world together with the US Treasury. However, as a first in history, leading rating agency Standard&Poor’s cut the US’s rating from AAA to AA+.

    This threat is again at our door. It is estimated that the Treasury will need a new raise in the limit by 19 May 2013, which means that the Republican and Democratic parties will have to reconcile once again. Meanwhile, Fitch warned that a new debt ceiling crisis would lower the country’s rating. According to a story released on 8 April 2013, the two parties are at the brink of a quarrel. The Republican Party pursues a sharp cut in budget expenditures and asks the Treasury to prioritize spending. Many experts argue that this is technically impossible. Besides, senior bureaucrats from the Bush era also say this is not attainable.

    Another story claims that last Wednesday, a House of Representatives committee with the Republican majority took a decision which exempts payments of interest from the debt ceiling limit, despite the opposition of the Democrats. The story says that the Democrats are calling this the “Pay China First Act” since China holds large amounts of US bonds. They are asking what will happen to the benefits for the elderly, students, and veterans. We will wait and see...

    This commentary was published in Radikal daily on 27.04.2013

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