ING's Willem Verhagen looks at how the debt ceiling impasse will play-out in the US.
again the US faces a difficult fiscal hurdle in the form of the
need to raise the Debt Ceiling. The script for this drama
should be familiar by now: As the deadline approaches the
debate heats up considerably and the positions of both parties
seem to become more entrenched.
In the end a last minute deal is then reached because the
alternative of driving the issue over the cliff is extremely
damaging to the economy. In this case "the alternative
scenario" involves a technical default on US debt with possibly
severe and lasting consequences.
world’s most important "safe" asset would no
longer be safe which should cause a structural and widespread
increase in risk premiums . In addition to this, a default can
set in motion an incredibly complex train of mechanical events
in the financial system that is impossible to stop. The risk of
a Lehman like financial cardiac arrest then looms large while
the ability to resuscitate the patient is probably a lot
smaller than in 2008 as there is less monetary and fiscal
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