The Economist: US faces debt nightmare

The US could face either a sovereign default or drastic cuts in public spending because of record government debt.

Either outcome would be devastating for global markets, The Economist reports.

“A default would undermine faith in the world’s most important financial system; big budget cuts could trigger a deep recession. Even if Congress manages to raise the debt ceiling before anything so dire happens, its flirtation with disaster serves as a warning about the deterioration of America’s fiscal health and the difficulty of recovering it,” the newspaper reports.

The global market is hoping that the US authorities will find a way out, says the article.

“The debt ceiling is a political creation devoid of any fundamental economic meaning. No other country binds its hands in such a crude manner. However, this means it needs a political solution, which cannot be taken for granted given present gridlock,” The Economist points out.

According to the publication, if this happens and the debt ceiling is raised again, budgetary gymnastics will fade from view, much like the debt clock itself.

The article notes that such a situation is highly undesirable, as the basis of the US financial system is becoming less stable each time.