Thursday, July 28, 2011

US economy on the verge of collapse

Looks like another super power is going to pay for it's Afghanistan misadventure, i.e. big losses  were observed on Wall Street, as the deadline approaches for US lawmakers to strike a deal to avoid a disastrous default. 

The White House along with Democrats and their Republican rivals continue to bicker over a deficit-slashing plan that would allow a hike in the US debt ceiling, despite the government running out of money to pay its bills before 2nd August deadline.

The House of Representatives is due to take up Republican Speaker John Boehner's plan for raising the $14.3 trillion debt limit, although it will likely fail due to a White House veto threat.

In anticipation of this, lawmakers are hunting for a compromise to avert a debt default, which threatens to have a devastating effect on global markets and the world economy.

"The scary part of the story is the fact that markets have not priced-in the US defaulting on its debt," said CMC Markets analyst Ben Le Brun.

"Should the unthinkable happen in the next week then a throwback to the chaos of 2008 would again become a reality," he told.

However, he added: "Should the majority of opinion be correct and the US does avoid a default, global markets do appear as if they are positioned for a relief rally of sorts."

The troubles sent Wall Street stocks lower for a third consecutive day, with the Dow plunging 1.59 percent, the S&P 500 2.03 percent lower and the Nasdaq diving 2.65 percent.

Moreover, New York's main contract, light sweet crude for delivery in September, fell 45 cents to $96.95 per barrel.

Update 1st August: The US House of Representatives has approved a last-gasp deal to raise the US borrowing limit in a decisive step toward averting a catastrophic debt default.

A day before the deadline to lift the debt ceiling, the passage by the Republican-controlled House of the $2.1 trillion deficit-cutting plan hammered out over the weekend cleared the way for the Senate to approve it.

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