Stock markets plummet amid risk of US default.
International markets fear the United States' $14,3 trillion debt; tension will continue until fears of payment problems dissipate; "We will find ways to resolve this serious issue," says Obama.
247_Stock markets around the world are painted red. Not a single index can escape global fears that the United States is close to defaulting on the biggest debt in recent economic history. At 12:15 PM Brasília time, the Ibovespa is down 1,6%, while indices in France, Germany, England, and Spain, which are nearing their closing time, are down 3,1%, 1,2%, 1,5%, and 3,3%, respectively. The American Nasdaq, S&P 500, and Dow Jones are down 1,9%, 1,6%, and 1,3%, respectively. Bucking the trend of risk, investors are flocking to gold, the safe haven during times of global panic. The metal is up almost 1% today, and its price in the futures market is approaching the record value of US$1,6 per ounce (world standard).
The fear will only dissipate if President Barack Obama manages to convince Congress to raise the country's debt limits. Right now, Obama is in the White House press room explaining the actions the United States needs to take to avoid the risk of default in August. With debts of US$14,3 trillion, the president seems confident he will find a way out, although he appears evasive. "We will find ways to resolve this serious issue," Obama said a short while ago. "This discussion had to happen someday. And it's happening now."
The United States is heading towards an unprecedented default on its debts to the market. Last night, a meeting at the White House between President Barack Obama, Vice President Joe Biden, and eight members of the US Congress, including the Speaker of the House of Representatives, John Boehner, ended without practical results. The government wants to operate without the $14,9 trillion debt ceiling – which will be reached on August 2nd. From that date, under current rules, the American administration will no longer have the resources to meet its commitments, such as redeeming bonds held by investors worldwide. Congress, however, refuses to release the government from the debt ceiling without obtaining, in return, measures to increase tax revenue and cut public spending. The most that the White House meeting produced was the scheduling of a new meeting for today. "The president was visibly frustrated," one of the participants told USA Today.
The demand from lawmakers to raise the US debt ceiling is for a federal program that would increase revenue by $1 trillion and reduce government spending by $3 trillion. The problem is that Obama and Biden's promises in this regard are not convincing Republicans, who refuse to release more money for the government to meet its existing commitments. If the impasse continues, it will lead to default starting August 2nd.
The prospect of the world's largest economy defaulting on its debt is raising tensions at the highest levels of the global economy. "I can't imagine for a second that the United States could default," IMF Managing Director Christine Lagarde told The Wall Street Journal. "That would be a real shock and bad news for the US economy." She added that a US default would "certainly compromise the stability" of the global economy. "I hope there will be enough intelligence from both parties and an understanding of the challenge that lies ahead for the United States, but also for the rest of the world," she stated.