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The American Default Looms

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August 2nd is the U.S. Treasury deadline for authorizing new borrowing and increasing the debt ceiling. The White House, however, have put in place a July 22nd deadline -- in order to give Congress sufficient time. Which is only a matter of weeks away. Any deal later than July 22nd, the United States will struggle to finance programs and debt.

But Republicans and Democrats are not talking. A package of cuts have been accepted, but the GOP do not want to increase taxation or repeal the Bush tax cuts. Democrats insist an austerity package requires adequate means to generate revenue and help balance the budget. In other words, Democrats desire to end lucrative tax breaks for the rich.

Neither side are contemplating the prospect of surrendering political ground, especially during election season. Political capital, sadly, is fundamentally more important than the financial well-being of America.

Last week, credit rating agencies issued a series of warnings; a scenario of 'what if' and how American debt would be allocated after a default. S&P have proposed this would not be a blanket default, the United States government will not forfeit the entire $14 trillion national debt. Instead, certain payments risk a downgrade; mostly likely short term debt. Which are also vulnerable to an interest rate spike.

Currently, these potential scenarios and events are hypothetical. In the subsequent weeks, though, it could become a grim reality. And there is a passionate minority of House Republicans, who favor a short term default. We are on the brink of a new and far greater economic crisis.

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