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Inside Story
Will the US default?
As politicians debate lifting the US debt ceiling, we ask what it would mean if the world's biggest economy defaults.
Last Modified: 19 Jul 2011 09:13

Republicans and Democrats are still debating a deal to lift the US debt ceiling in order to avoid defaulting on its payments. Congress must raise the $14.3 trillion limit on US borrowing by August 2 or the government will run out of money to pay its bills.

The US government reached its debt limit in May, and since then the treasury department has used special measures to allow the government to keep paying its bills.

But unless the limit is raised by August 2, the treasury says growing spending and debt service commitments will force a default, which would have disastrous ripple effects throughout the global financial system. 

But, with time running out to reach a deal, both Democrats and Republicans have refused to budge from their positions. Republicans want spending cuts to balance the budget, which will affect Obama's social security programmes, while Democrats insist on taxing wealthy Americans.

So, just how far apart are they and what will it mean if the world's biggest economy defaults on its debts?

Inside Story, with presenter Hazem Sika, discusses with Jason Johnson, a professor of political science and author of Political Consultants and Campaigns: One day to sell and David Cohen, the director of Asian Economic Forecasting for Action Economics, an independent market analysis firm.

This episode of Inside Story aired from Monday, July 18, 2011.

Source:
Al Jazeera
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