Global Consequences of US Failure to Pay Debt

Deadlock over lifting the US debt limit – arbitrary, created by Congress to control spending – is unnerving economists worldwide. A few in Congress are willing to test a bizarre theory that refusing to pay debt, thus disrupting the global economy, will win them voters’ respect and force the country to tighten spending. Analysts in the US, China and Europe do not agree. Instead, US leaders will be viewed as reckless, incompetent and dangerous. The US simply may not be able to handle technical challenges of default, interest rates would climb and could trigger a global crash, warns Bloomberg. Global investors had regarded Treasury notes as risk free, note China Daily’s Gao Changxin and Wei Tian, and “default will wreak havoc in the global financial system, as US government bonds are the pillar of global financial markets.” The US plays a careless game of Russian roulette, warns Gideon Rachman of Financial Times: “America’s admirers wince at the sight of a nation that they hold up as a model, making itself look so bad.” – YaleGlobal