America’s debt problem
Being the largest economy in the history of the world might have its advantages but the accompanying problems are also huge in scale. A slight tumble doesn’t cause gentle ripple effects but an avalanche effect; one that hurts financial institutions, stock markets and governments around the globe. Mindful of that, many have been warning the US about the repercussions that its fiscal consolidation plan of increasing the debt ceiling by 2.4 trillion dollars could have.
The world’s largest economy was downgraded to AA+ credit rating from the most prestigious AAA by Standard and Poor’s when it went ahead with its plan, causing stocks to plunge down and leaving investors worried. The anti-American lot need not start their celebrations just yet; the country is still the world’s dominant economic superpower. And the down-with-the-empire wish list was a luxury of the rebels of yore; the interconnectedness of the global economy shows that if the US falls, it takes the world with it.
If America’s credit rating falls further down and the dollar sheds even a tiny bit of its value, which in these circumstances would not be totally unexpected, countries like China whose foreign dollar assets alone are in trillions, have got a plethora of issues to tackle with. Years of planning would vanish in thin air.
These are, of course, genuine concerns but there seems to be no easy way out. The blame mainly lies with the US government whose financial meanderings were questionable since even before the recession of 2008. Politically, the relative maturity of the American polity ensures the sitting government will not bear the voters’ brunt. The Republicans are the ones in the hot seat, considered by many working class Americans as having flirted with a debt default to save the two goals it cherishes the most: saving the rich from extra taxes and continuing to engage in costly wars abroad. A short term solution is hard to get approved by the Obama administration due to the Republicans’ fractional control of Congress. If anything, this credit rating is a problem for all but any effective solution has to come from the US itself.
