This is an excellent, MUST-READ article by highly respected macro-economist, Gavyn Davies, writing in his FT blog.
The financial markets seem to be betting on a settlement for the moment but we could still easily see massive selling or shorting in the coming weeks. Meanwhile, according to the latest Gallop survey, reported in the NYT, economic confidence has taken a nose dive.
Gavyn Davies expertly explains the doomsday or melt-down scenario towards a US default, considering risks, opportunities and probabilities.
Let me ask an open question:
After the economic damage that the US unloaded on the global economy following the sub-prime crisis in 2008, is it really possible that the US would force the World back into recession by defaulting on US Government debt?
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Dr Alf raises an important hypothetical question but the answer is that unless President Obama has gone mad, a grubby deal will be done and a watered down version of Obamacare will be the price of another raised debt ceiling, along with cuts to military spending following drawdown from Afghanistan.
Under Ronald Reagan the debt ceiling was raised 18 times and when I lived in that country it was an annual pantomime with the Government threatening shutdown and Armageddon economically only for the politicians to emerge from a darkened smoke filled room to announce a new deal.
There are too many powerful people with a vested interest in printing more money so Armageddon will not happen this time.