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Countries Gear Up for U.S Possible Debt Default
- By Williams Ekanem
- Published July 19th, 2011
- Washington File
- Unrated
Developed markets and those whose economies are deeply connected with that of the United States of America have started gearing up to buffer their economies should the U.S. fail in its debt ceiling rise by August 2.
A failure to raise the debt ceiling stands to hurt the fragile U.S. economy and reverberate worldwide, driving up interest rates and shaking currency, equity and bond markets.
China, the United States’ biggest foreign creditor with more than $1 trillion in Treasury debt as of March, fears even a small U.S. default. The Chinese foreign ministry said on Thursday it hopes Washington adopts responsible policies to protect investor interests.
South Korea, which has more than $300 billion in foreign exchange reserves, was more upbeat. Finance Minister Bahk Jae-wan said he was optimistic that the United States will resolve the debt crisis and avoid default.
“We are not at a stage at which we need to consider steps such as (reviving) a currency swap,” Bahk told Reuters in an interview, referring to currency arrangements set up with the Federal Reserve during the global financial crisis.
“I am optimistic the U.S. Congress and government will find a good solution before the August 2 deadline.”
The ratings agencies Moody’s and Standard & Poor’s have also signaled they may cut the gold-plated U.S. credit rating if the borrowing limit isn’t raised and bills are not paid.
The Wall Street Journal, reports that Moody’s Investors Service said it was reviewing the USA’s top Aaa bond rating for a possible downgrade, citing the rising possibility that the government’s $14.29 trillion borrowing limit won’t be raised soon enough to prevent the U.S. from running out of money to pay its bills.
In addition, the publication said that ratings agency Standard & Poor’s privately has told lawmakers and top business groups it might cut the U.S. credit rating if the government fails to make any of its expected payments-including Social Security cheques- even if it makes all its debt payments, people familiar with the matter said.
According to the report, the rating agencies’ actions highlight the potential costs of Washington’s inability to reach an agreement to cut the federal budget deficit that Republicans have said is a prerequisite to Congress raising the debt ceiling.
Treasury Secretary, Timothy Geithner at the Capitol said, “we don’t have time,” encouraging lawmakers to act fast.
White House spokesman Jay Carney said a debt deal must take shape soon to assuage markets and make clear that no matter what, the United States won’t default. “The clock is ticking. We need to get further down the road here,” Carney said. “We need to get to the point where we know whether or not we can achieve a significant compromise, bipartisan compromise, on deficit reduction.
“And if not,” he said, and then we have to make sure we do the bare minimum, which is not default on our obligations.”
A failure to raise the debt ceiling stands to hurt the fragile U.S. economy and reverberate worldwide, driving up interest rates and shaking currency, equity and bond markets.
China, the United States’ biggest foreign creditor with more than $1 trillion in Treasury debt as of March, fears even a small U.S. default. The Chinese foreign ministry said on Thursday it hopes Washington adopts responsible policies to protect investor interests.
South Korea, which has more than $300 billion in foreign exchange reserves, was more upbeat. Finance Minister Bahk Jae-wan said he was optimistic that the United States will resolve the debt crisis and avoid default.
“We are not at a stage at which we need to consider steps such as (reviving) a currency swap,” Bahk told Reuters in an interview, referring to currency arrangements set up with the Federal Reserve during the global financial crisis.
“I am optimistic the U.S. Congress and government will find a good solution before the August 2 deadline.”
The ratings agencies Moody’s and Standard & Poor’s have also signaled they may cut the gold-plated U.S. credit rating if the borrowing limit isn’t raised and bills are not paid.
The Wall Street Journal, reports that Moody’s Investors Service said it was reviewing the USA’s top Aaa bond rating for a possible downgrade, citing the rising possibility that the government’s $14.29 trillion borrowing limit won’t be raised soon enough to prevent the U.S. from running out of money to pay its bills.
In addition, the publication said that ratings agency Standard & Poor’s privately has told lawmakers and top business groups it might cut the U.S. credit rating if the government fails to make any of its expected payments-including Social Security cheques- even if it makes all its debt payments, people familiar with the matter said.
According to the report, the rating agencies’ actions highlight the potential costs of Washington’s inability to reach an agreement to cut the federal budget deficit that Republicans have said is a prerequisite to Congress raising the debt ceiling.
Treasury Secretary, Timothy Geithner at the Capitol said, “we don’t have time,” encouraging lawmakers to act fast.
White House spokesman Jay Carney said a debt deal must take shape soon to assuage markets and make clear that no matter what, the United States won’t default. “The clock is ticking. We need to get further down the road here,” Carney said. “We need to get to the point where we know whether or not we can achieve a significant compromise, bipartisan compromise, on deficit reduction.
“And if not,” he said, and then we have to make sure we do the bare minimum, which is not default on our obligations.”
