How Will the World Economy React Now That the United States is Flat Broke?

Once upon a time the byline of the United States was “The buck stops here.” Now our nation’s byline might read: The bucks have now stopped. Period.

In a probable escalating chain reaction scenario, where we suppose that the US economy is the biggest and ‘brokest’ economic domino, the first domino standing in the chain, thus the first to fall, and in a world where the economies of dozens of nations, if not hundreds, are melded to the rise or fall of the US economy and the value of the US dollar, the inevitable tipping point which causes the first domino to fall [ that domino being us ] would theoretically be national bankruptcy.  Aren’t we at that point NOW? Isn’t the theoretical literally becoming actual?

I’m not an economist, but I’m not blind either. Looking at charts which graphically display the sheer enormity and magnitude of the nation’s debt is not just sobering, it’s frightening. This would make a prepper out of anybody, even if they were the most liberal of extreme liberals who believed that leaving the printing presses running 24-7 was a solution to this problem. The United States has spent itself into bankruptcy in the 13 years since Bill Clinton left office. There really is no pretty way to say this.

Two reckless “fly-by-the-seat-of-our-pants wars in the Mideast, the burden of Medicare and entitlements, the ever soaring cost of just paying the interest on existing debt, and the never-ending WASTE which goes on have combined to create the perfect storm of national indebtedness, teetering on the edge of the cliff. I found some charts which portray the sheer enormity of the debt cliff this morning. The first chart doesn’t cover the Obama presidency, but have a look at what George W. Bush did while he was in office.

I also noticed that many of the other charts have omitted factoring in the Obama years. I wonder why that is. As you go deeper into the jungle of charts, you soon find out.  A few years back the Heritage Foundation had warned that Obama’s plan for governing would double the national debt. In fact, it has now more than doubled.

The third chart shows that under Barack Obama the national debt went from 5.8 trillion to 14.3 trillion in just four short years. Many estimate it’s now at 17.5 trillion dollars. It’s absolute madness and anyone with an ounce of common sense knows it cannot go on this way.

Something has to give.  When the biggest, brokest domino called the US of A finally teeters and falls, the entire world will fall with it. That’s what IMF head honcho Christine Lagarde is worried about. I’ll be she’s a robust prepper herself in her time off from the IMF.

I have to admit I got kind of addicted to looking at these charts and graphs. They really don’t lie. Presidents lie. Congress, the Senate, individual politicians – they all lie. The numbers don’t lie. Here’s more:

Article cited from

IMF head warns US debt crisis threatens world economy

IMF head Christine Lagarde says it is “mission critical” that the situation is resolved

IMF managing director Christine Lagarde says failure to raise the US debt ceiling would be a far worse threat to the global economy than the current shutdown.

The shutdown is due to a budget standoff between President Barack Obama and Congress.

But a worse problem looms: the US will run out of money if there is no agreement to raise the borrowing limit.

Ms Lagarde’s comments were echoed by the US Treasury.

It says a debt default could lead to a financial crisis as bad as 2008 or worse.

Mr Obama emphasised that gloomy message in a separate speech on Thursday.

“As reckless as a government shutdown is, as many people as are being hurt by a government shutdown, an economic shutdown that results from default would be dramatically worse,” he said.

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A default would be unprecedented and has the potential to be catastrophic”

US Treasury report

‘Mission critical’

Mr Obama and Congressional leaders have been in political deadlock for days, which has had the effect of freezing non-essential US government functions.

The US government closed non-essential operations on Tuesday after Congress failed to strike a deal on a new budget.

The shutdown has left more than 700,000 employees on unpaid leave and closed national parks, tourist sites, government websites, office buildings, and more.

For US economic watchers, a widely tracked indicator – the monthly US jobs report – has been delayed due to the shutdown, it was announced on Thursday.

However, while this budget crisis rages in Washington DC, another, more dangerous, one looms in the coming weeks.

On 17 October, the US government will run out of cash to pay its bills – unless the debt ceiling is raised.

In a speech looking ahead to a decade of challenges for the world economy, Ms Lagarde said that the US government needed to fix its finances for the long term.

She said it was “mission critical” that the US agrees a new debt ceiling.

But as she has often said before, there should not be too much change in the short term because that could undermine the economic recovery.

debt graphic

Cautiously positive

On the prospects for the world economy in general terms Ms Lagarde was cautiously positive.

She added that, although the global economic outlook remained subdued, there were signs that growth was looking up and financial stability returning.

She said not only was the US picking up steam, but the eurozone was too, with a growth forecast of 1% next year. Even Japan, she said, was beginning to improve – albeit all three areas needed to make policy changes.

The IMF’s latest economic forecasts will be released in a few days and will give a more detailed view of global economic health and prospects.

‘End this shutdown right now’

Mr Obama says the shutdown can end “right now” if Mr Boehner calls a vote

To ensure that the shutdown impasse does not bleed into negotiations over the debt ceiling, Mr Obama used his speech to call on the speaker of the House of Representatives, John Boehner, to bring a spending bill to a vote.

“Take a vote, stop this farce, and end this shutdown right now,” implored Mr Obama, speaking from the floor of a construction business that has been hurt by the shutdown.

Mr Obama added that in his view, unlike budget battles of the past, the shutdown was not about ideological differences relating to how much the federal government should be spending – noting deficits have been falling at their fastest pace in 60 years.

“This not about spending and this is not about fiscal responsibility, this whole thing is about one thing: the Republican obsession with dismantling the Affordable Care Act,” he said, citing his signature domestic legislative achievement, which expands health care coverage for millions of Americans.

Impact ‘more than a generation’

In its report, the US Treasury warned: “A default would be unprecedented and has the potential to be catastrophic.”

“Credit markets could freeze, the value of the dollar could plummet, US interest rates could skyrocket, the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse.”

The report said that if this were to happen, the impact could last for “more than a generation.”

Already, the cost of US borrowing in the short term has increased.

Essentially, the US government is paying less to borrow for six months than it is paying to borrow for one month – an indication that investors are worried about the near-term prospects of a US debt default on 17 October, which would put the security of one-month Treasury bonds in doubt.

Some bank analysts have termed the next month the “debt ceiling danger zone”.

Traditionally, investors view this as an “inverted yield curve” which is typically viewed as a harbinger of a recession.

The current shutdown is costing the US economy an estimated $300m a day.

According to Goldman Sachs, it could shave as much as 0.2% from GDP each week the government is closed.

2 thoughts on “How Will the World Economy React Now That the United States is Flat Broke?

  1. Pingback: It Is Time To Confront The Tea Party | rational politics

  2. Pingback: Forget Gov Shutdown: IMF & US Treasury Warn Catastrophic Debt Default | Prepper Podcast Radio Network

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