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Timely Economic Issues

The U.S. role in the world can be eased if the political crisis caused by the adoption of the budget will be delayed. This was announced by U.S. Secretary of State, John Kerry, who came in place of Barack Obama in Bali to attend the APEC summit. If it were to continue or recur, people will start asking questions about the U.S. desire to adhere to correct course and have the ability to do it. But it is not so, and I do not think that this will not happen, said Kerry to the reporters at the APEC summit. The U.S. has still not decided on the budget, and it prolongs the negotiations on another crucial issue – the national debt ceiling increase. Furthermore, the lack of news from the U.S. is beginning to feverish world markets.

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The Bloomberg agency predicts a global apocalypse if the U.S. Congress does not find a compromise before the 17 of October (Onaran). By that date, the U.S. will remain in the budget of $ 30 billion, which is equivalent to a technical default of the largest economies in the world.

One of the most respected business information agencies, Bloomberg, predicts the collapse of the world economy if the U.S. declares a default not being able to pay foreign obligations. Analysts compare this default to the bankruptcy of the investment bank Lehman Brothers in 2008 before the crisis and say that now everything will be even worse. It is necessary to point out that the collapse of Lehman Brothers triggered the most severe recession since the Great Depression in the United States and became the starting point of the global financial crisis that the world has not yet recovered.

If the U.S. stops to pay the bills, it will lead to the destabilization of the stock markets from Brazil to Zurich, stop dependent on the debt credit facility of $ 5 trillion. This, in turn, will cause the fall of the U.S. currency, and the global economy will lead to the “end of the world” according to Bloomberg. The hardest hits were those countries that are investing in the U.S. securities most, namely China and Japan. The government agencies in the United States have already reduced GDP growth by 0.2 percent.

Investors are beginning to question the effectiveness of the U.S. state apparatus. As for the other things associated with the payments on the public debt, it affects virtually everyone, even those countries that do not have a large amount of investment, because the rate on Treasury securities is a kind of benchmark. In the case of an increased risk of non-payment, this rate will increase and bet on all the bonds that exist in the world. In the end, the cost of borrowing will be higher.

In Congress, there is a struggle of Republicans and Democrats for concessions of some budget items and also because of health insurance program, which Republicans want to cut, and Obama in this case acts as a populist. This position explains it all. Republicans have to first close the budget financing of the government, what they have achieved, and show that they still have some strength to continue resisting Obama.

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Bank of America, one of the largest U.S. banks, has lowered the growth forecast for the country’s economy. The main reason is the suspension of the U.S. government. GDP estimate is based on the assumption that the U.S. government will resume in two weeks. In this case, according to experts, the U.S. economy will grow by 1.7% in the III quarter and by 2% in the IV quarter on an annualized basis. Previously, it was expected to grow by 2.5%. It is assumed that the Federal Reserve Bank will reduce the amount of stimulus in January 2014. Recently, the American public servants have been forced to go on a forced leave after the budget crisis. Economists have estimated that there is about a million of them. The duration of work stoppages can encourage these people to begin to limit their spending, and it will have a negative impact on the country’s GDP.

The International Monetary Fund (IMF) warned the White House that the delay in raising the issue of the U.S. debt ceiling will result in serious negative consequences not only for the U.S., but for the world economy (Talley). This statement was made by the head of the Fund, Christine Lagarde. In her point of view, the United States debt ceiling, which is 16.7 trillion dollars, should agree on the increase as soon as possible. According to Lagarde, the current nervousness can do major emerging economies in the amount of up to one percent of GDP. On October 1, the U.S. discontinued funding of federal government agencies, as Congress could not agree on the budget for the first time in 17 years.

Against this background, the confidence of the U.S. citizens in terms of the country’s economy fell to a minimum of a year. As it was mentioned previously, the main reason is the suspension of the government. These are the results of a survey conducted by Gallup. During the three days period, which ended on the 2nd of October, the confidence index dropped by 5 points and was minus 32 points. This means that the number of respondents, who mentioned the worsening conditions, is by 32 percentage points more than those, who said that the situation is improving. The support rating of the U.S. President Barack Obama has declined over this period by 1 point – up to 44 points, while the number of dissatisfaction by the head of the state has increased by 2 points – up to 50 points.

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