The Height Of Debt, US Style

The recent stalemate in America over its debt crisis has been solved, but it is a temporary band-aid and the issue could one day impact global economy in a major way

- Sujit Bhar

THE American economy has survived by the skin of its teeth, till December. Sta ring at a massive default, something that could have shaken the foundations of not only the American economy but the world in general, the US Senate, its upper house, finally voted 50-48 to pass a bill that will increase the country’s debt limit by $480bn. That should cover expenses—debt servicing and other issues—till early December. All this happened just two weeks ahead of the abyss.

This is a typical American disease if one might say so, but this time the country was also staring at a possible credit rating downgrade. Credit rating agencies had threatened to do so. When these things happen in countries such as Ar gen tina and Greece, there are rarely any eyebrows raised. Instead, there are smiles and “I told you so” quotes from experts. This time it loomed large over the largest economy in the world. The payments are due by October 18, and with Congress initially not agreeing to further raise the country’s borrowing cap, the country’s treasury was left wondering where it would get the money to service its $28.43 trillion debt. Possibilities existed that the world might slide into a deep gloom, otherwise called a recession.

For the record, the entire US gross domestic product (GDP) was $20.93 trillion last year.

Why is a country’s sovereign credit rating so important? The definition is interesting: “A sovereign credit rating is an independent assessment of the creditworthiness of a country or sovereign entity. It can give investors insights into the level of risk associated with investing in the debt of a particular country, including any political risk.”