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1st October 2013

The USA and the Debt Ceiling

Filed Under: Business News

Unlike the UK, the USA has a debt ceiling.  This is the maximum amount of money that the government can borrow.

The debt ceiling, which currently stands at circa 16.7 trillion dollars ($16,700,000,000,000) or circa $55,000 for every man, woman and child in the country, cannot be extended unless the bill passed by the Republican led House of Representatives is passed in the Democratic led Senate.

What does all this mean, it means that until the debt ceiling is extended more than 800,000 federal workers face being sent home on unpaid leave.

From a market perspective all may not be doom and gloom.  According to Bloomberg, the Standards & Poor’s 500 Index (SPX) has risen 11 percent on average in the 12 months following a government shutdown in the 12 cases since 1976.

Where does the issue currently stand, well the Senate voted 54-46 against the bill, which would fund the government only if President Obama’s healthcare law is delayed a year.  If this does not happen then the President can use the 14th Amendment to unilaterally raise the debt ceiling, although this is not how things are done.  Only time will tell. . .

Daniel Langridge
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