EconomicCrisis.US

The head of the International Monetary Fund (IMF), Christine Lagarde, has warned that the clock was ticking on a US debt deal, as the dollar slid to new lows amid concerns of a looming and unprecedented default by the world’s top economy.

US President Barack Obama, in a solemn late night address to the nation, hit out at what he called a “dangerous game” being played by rival Republicans with the two sides deadlocked over a deal to raise the debt ceiling by August 2.

“We can’t allow the American people to become collateral damage to Washington’s political warfare,” Obama said on Monday in his White House address, and warning of a “deep economic crisis” if the US defaults.
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How did the United States, the world’s richest nation and sole superpower, come to the brink of a catastrophic default on its debt that could send shockwaves through the fragile world economy?

Dire economic downturns — including the worst since the Great Depression of the 1930s — giant tax cuts, costly wars in Iraq and Afghanistan, and a pricey new health program for the elderly all helped sour Washington’s fiscal picture.

Or, as President Barack Obama put it literally in a speech late Monday to plead for a blend of deep cuts to government programs and increases to tax revenues: “For the last decade, we’ve spent more money than we took in.”
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The White House and Congress are fighting over how to raise the debt ceiling.

With the deadline for reaching a deal fast approaching, the fear is that the US will run out of money.

What is the debt ceiling?

The US government faces a legal limit on the total amount of debts it can run up in order to pay its bills – including military salaries, interest on existing loans, and Medicare. The current limit is $14.3 trillion (£8.9tn).

The cap was reached in May. Treasury Secretary Timothy Geithner was able to extend the expected day of reckoning to 2 August, by various tricks such as postponing payments into government pension schemes, and thanks to better-than-expected tax revenues.
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Debt default. A ratings downgrade. Political deadlock. Such terms, once associated primarily with the developing world, now abound in the mighty United States.

As the U.S. Congress flirts with the once-unthinkable prospect of not paying the country’s bills, the heated battle over a usually routine vote to lift the country’s debt ceiling is dealing another blow to America’s image.

The global financial crisis, which was rooted in poor regulation of the U.S. housing and banking sectors, already tarnished perceptions of the United States overseas.
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