Debt talks in Washington reached a crisis point today as negotiations collapsed ahead of the August 2nd deadline. House speaker Republican John Boehner walked out of negotiations accusing president Obama of moving the goal posts by demanding bigger tax increases.
An angry Obama has said he and other Republicans are puzzled as to why a deal couldn’t get done. The president was offering to slash a $1 trillion in discretionary spending as well as cutting $650bn from Medicare and other entitlements.
People will be disappointed to hear Boehner just walked away at this time of crisis. Walking out at this stage cannot be constructive. It’s also extremely irresponsible with the spectre of a potentially disastrous US debt downgrade looming, to say nothing of a possible default. Republicans generally are starting to look increasingly rash as they unrealistically refuse to except tax increases.
If US debt were to be downgraded, even slightly, this in itself could have huge consequences. Many pension funds worldwide are required to only hold AAA securities and many currently hold large amounts of US government debt. In the event of a downgrade they would all have to sell this debt which could have a huge impact on the US dollar and the price of US debt, possibly causing a downward spiral, as yields rise and the US has to pay more interest on its debt in the future. The effects on the global economy and jobs could be huge.
A default is of course unthinkable and would lead to a worldwide financial meltdown.
It’s time for the politicians to stop thinking about themselves for once and to start thinking about the man in the street. It’s time to get this thing sorted. Each US taxpayer now owes almost $130,000