2 Minutes On The US Debt Ceiling Crisis

I thought I would bring you up to speed on some of the facts in the US Debt ceiling crisis.

1) The USA Government have borrowed so much money they owe $16.7 trillion

2) Their Government spend more than they collect (budget deficit) which means this debt continues to grow.  Note this is globally not that uncommon as Governments fund roads, healthcare and education.

3) In the USA they have a rule they cannot exceed the debt ceiling ($16.7 trillion) and by October 17th 2013 they will reach this ‘ceiling’.

4) Increasing the debt level is normally straight forward you need 60% of the vote from the Senate and the House Of Representatives.

5) The House Of Representatives is made up of 54% Democrats (Obama) and 46% Republicans (opposition)

6) Obamacare came into law this month and the Republicans heavily oppose the changes to the healthcare reform and want it removed, delayed or amended.  Hence there is the sticking point.

7) As this standoff continues the Government remains shutdown.

So the question you might be asking is what will happen if no deal is reached and they cannot agree?  The answer is the US will be technically in default meaning they cannot pay the interest on it’s debt.  In this case the people who hold US bonds or treasuries which includes mums and dads, large companies and $1 trillion from China could be at risk of losses in what was considered a ‘safe’ investment.

Now this article is not designed to scare you, it is about you understanding the implications of a potential technical default caused by a political debate.  Very very different to the Rudd, Gillard – Abbott issues we are used to here.  The markets, in my opinion are pricing in a resolution in the next day, but if you are concerned or would like more information please do not hesitate to contact us.