Debt Ceiling Talks Have the World on Edge

Financial markets, which have viewed the debt ceiling negotiations with calm, are beginning to get nervous amid fears that Republicans and Democrats may be unable to reach an agreement.

What's the Latest Development?

After weeks of fruitless negotiations, Democrats and Republicans are now considering a deal to cut the federal budget by $1.5 trillion, a plan which would also establish a congressional committee to recommend deeper cuts in the future. Still, neither side has signed its name on the dotted line and it is making global financial institutions nervous. The financial rating agency Moody's has warned the U.S. that downgrading the nation's credit rating is the imminent outcome if an agreement cannot be reached soon. Predictions about the economic fallout from failing to raise the debt ceiling by August 2 range from mild to cataclysmic. 

What's the Big Idea?

So what will happen on August 3, the day after the U.S. could reach its borrowing limit if the Congress doesn't raise the debt ceiling? The calm of the financial markets thus far indicates their confidence that a solution will be found, but what good will the solution do? "The debt limit will be raised again just before the impending volcanic eruption, exacerbating the problem and postponing an attempt to solve the problem of the U.S.'s enormous debt to the next, not too distant deadline." Out of the negotiations will come a quick, political fix; not the long-term solution the country needs. 

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