Global Fears Over U.S. Debt ImpasseAs Republican and Democratic plans for raising the U.S. debt ceiling ahead of the August 2 deadline stalled, the dollar fell (WSJ) to a new 2011 low against the yen and a record low against the Swiss franc.Wall Street bondholders worry that even if a last-minute agreement is reached, the political deadlock and lack of a significant deficit-reduction package could still spur credit rating agencies to cut the nation's long-held credit rating (Bloomberg) of AAA. Such a move alone, which could add $100 billion a year to government costs while increasing treasury yields, would likely damage U.S. credibility (Politico) on the global stage and shake international investors.European stocks (Reuters), responding to the U.S. impasse and eurozone debt worries, fell for the third consecutive day on Wednesday.
At a speech at CFR on Tuesday, IMF Managing Director Christine Lagarde (FT) urged U.S. lawmakers to take bold fiscal action and raise the debt ceiling in order to avoid severe global consequences.
As partisan wrangling over the U.S. debt ceiling continues in Washington, fears are mounting that a default could trigger another global economic crisis. This CFR Issue Guide offers timely analysis on the global implications of the U.S. debt crisis.
