Monday, January 10, 2011

Raise debt limit to avoid national catastrophe, Geithner warns Congress

If this headline was shown during the European sovereign debt crisis, it will surely cause a few hundred points drop in the stock markets.

Treasury Secretary Timothy F. Geithner warned lawmakers Thursday that the national debt could hit the legal limit on borrowing as soon as March 31, and he urged quick action to avoid a government default that would spark "catastrophic economic consequences that would last for decades."

In a letter sent to every member of Congress, Geithner said the national debt stands at $13.95 trillion - $335 billion short of the limit on borrowing that Congress set last year. Unless Congress acts to raise the limit, the letter says, the United States will default on its debt, an unprecedented event that could destroy "millions of American jobs," cause interest rates to spike, damage the dollar, and halt payments to millions of Social Security recipients, veterans and active U.S. troops.

"Failure to increase the limit would be deeply irresponsible," Geithner wrote. "For these reasons, I am requesting that Congress act to increase the limit early this year, well before the threat of default becomes imminent."

The story was long and convincing that something will happen if they don't do anything about it. However there is only one point in the whole story that is matter from investing perspective. What is the % of debt to GDP? It is still ok compared to Japan and other countries they will argue(slightly above 100%), so we will know where this story will end. Just a bit of drama trying show they are fighting the best for their people and they will raise the limit by the end of the day.

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