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How Will the U.S. Debt Ceiling Debate Affect the Rest of the World?

The two issues that are centered at the heart of the United States economic and political crisis are the Affordable Healthcare Act, or Obamacare, and the US Debt Ceiling Crisis. These two issues could affect the world by creating a global economic crisis for countries that hold US debt and countries that are tied with America through economic trade.

If we are to look at the American economic debate from a global perspective, there are some questions that need to be answered to fully understand it. What is Obamacare and how is it the center of the fiscal policy argument? Along with, what is the US debt limit debate and how does it affect the world’s economy including the United Kingdom?

What Is Obamacare and the Arguments surrounding it?

It is a law that has already been passed that would “increase the number of Americans covered by health insurance and decrease the cost of health care.” Insurance companies wouldn’t be allowed to refuse to serve anyone, citizens with pre-existing conditions would not be forced to pay extra for coverage, and there would be a limit on how much profit insurance companies would receive.

Republicans are against Obamacare because they believe it will cause the deficit to reduce and increase spending and tax hikes.

Although the changes to the health care system are supposed to occur over a decade, with only an individual mandate starting in early 2014, Congress is split on going forward with this already-passed bill.

What is the Debt Ceiling and How Will This debate Affect the Global Economy

The issue pertaining to the Debt Ceiling involved how if U.S. Congress failed to raise the borrowing limit for the government it would result in not only damage to the U.S. economy but the global economy. The situation has many implications for the global economy, as the Philippine Star reported.

Although the debt ceiling has been temporarily raised, fear of a future default exists. The debt ceiling has increased, it is now higher than its previous amount of $16.7 trillion but America needs to create measures that do not hurt economic recovery, instead of government spending cuts and sequesters. This is important in a global climate that is showing improvement, with an increase in growth and stability, because fears of a default could be catastrophic for other countries.

The debt limit, which measures the amount a country could borrow to fund its payments, was recently about to run out. A fear of a default was imminent, and a domino effect would have been felt worldwide.

Any bank that uses U.S. Treasury bonds for borrowing security would face a disruption that could possibly create a crisis for the credit market. It would also cause banks to reduce the lending amount that they issue because the majority of their reserves are held in Treasuries, along with many other consequences that CNN Money collected in an informing list. To elaborate on this, when an individual faces debt, they can turn to organizations such as National Debt Relief.com, but who does a country turn to?

The United Kingdom is affected by the U.S. debt issue due to deep ties with American economy. The UK is dependent on American trade and vice versa through finances and goods and also holds a sizeable amount of US debt, along with many other European and Asian countries.

This two-way dependence makes the global economy fragile. The United States is the world’s largest financial system and this lack of financial confidence created through debt issues and the fear of a default could harm both America and the world market. A demand in goods could falter, which could create a new American recession and hurt the countries that hold US debt. If the US is unable to repay its debt (which is now in the trillions), will that lead other countries into debt that are banking on those funds? Only foreboding time will tell.

Dave Landry Jr. is an American personal finance manager and business owner who enjoys blogging on anything finance, economics, politics or business-related. He hopes you enjoy this article and seek out more of his work, including commentary on how the Asia and Canada will be affected by this issue.

Peter Christopher

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