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جمعرات، 28 اپریل، 2011

US facing default

In addition to the two US wars in Iraq and Afghanistan winding down to something no so far short of defeat, Washington is now writhing is fiscal crisis, the coin of the realm is losing its credit worthiness, and longtime allies are forging economic and even military ties to rival China and Russia. To all of this, Washington should feel free now to add the certain loss of loyal surrogates across the Middle East.
These so-called loyal allies increasingly look like an empire of failed or insubordinate states, ending half a century of absolute. US control over the Middle East in general and the Persian Gulf in particular. Not a good time to be a hegemonic power !


The United States may default on its debt obligations as the deadline for reaching the borrowing limit to cover the budget deficit draws nearer. The country is in for a financial disaster if Congress fails to increase the debt limit in the near future.
Warnings to this effect have been coming from representatives of the Obama administration. According to the Treasury Department, the 14.3 trillion-dollar debt limit will be reached by May 16th. After that, the US will no longer be able to repay its debts.
Viktor Supyan, Deputy Director of the Institute of the US and Canada, has doubts about these forecasts:
"The US economy is the world’s strongest, and the US financial mechanism is poised to receive loans from creditors across the globe because investment in US securities is the safest. Nevertheless, this leads to an increase in state debt which has to be serviced. As a result, the US has to increase the debt limit all the time, and this time is no exception. No one wants the US to default – nor the US proper, nor its creditors. The lion’s share of all international payments are in dollars. If the dollar collapses, the entire global economy will go down the drain."
Even though all this makes sense, building up state debt cannot go on indefinitely. An increase in debt is fraught with risks for the US economy. This fiscal year, federal budget expenditures will total 3.7 trillion dollars, whereas revenues will reach 2.2 trillion.
US Congress is currently witnessing fierce debates among those in favor of austerity measures in order to cut debt and proponents of a further economic growth at the expense of extending credits. The Republicans, who have a majority in the House of Representatives, insist on reducing budgetary spending, first of all, as regards state-run healthcare programs. Simultaneously, they are raising the issue of cutting taxes. Naturally, the incumbent Democrats cannot agree to the moves, given the unfolding presidential campaign and because of party interests.
As American lawmakers discuss debt-related issues, the US solvency ratings are falling down. Foreign investors fear a drop in American securities ratings. Wall Street has been sounding alarm too.
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