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The News God > Blog > News > US Federal Debt And Crisis
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US Federal Debt And Crisis

Rose Tillerson Bankson
Last updated: October 22, 2021 2:43 pm
Rose Tillerson Bankson - Editor
October 22, 2021
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US Federal Debt And Crisis
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Recently, there has been a lot of discussion among global investors about two prospective debt defaults, but they are of different magnitudes in terms of their potential effect on global stock markets. There are many reasons for this, the first being that the federal government’s rivers of borrowed money are running dry and in desperate need of replenishment. The other business is a big Chinese property developer that has fallen into financial difficulties as a result of spending too much money on things like electric vehicles and sponsoring a football team, among other things.

A possible debt default for the United States federal debt is in the near future, US Treasury Secretary Janet Yellen faces her most difficult challenge to date during her eight-month tenure. She must convince Republican lawmakers to increase the nation’s debt ceiling, which is now set at.5 trillion, regardless of their opposition.

Crisis Effect on the US

An open letter to senior US legislators from six former US Treasury secretaries was issued last week, warning them that a default would destabilize financial markets and stifle economic development. According to sources in the United States media, Yellen also sent a warning to the nation’s biggest banks and financial institutions last week about the very real possibility of a default.

In order to make matters even more difficult, Democrats, as well as Republicans across the United States, are at each one’s throats about US Vice President Joe Biden’s latest $3.5 trillion bill for spending that proposes substantial tax increases for wealthy corporations and individuals but is battling a fierce opposition to it from Republicans within Congress. It remains to be seen if they would make a last-minute agreement with the White House to lower Vice President Biden’s massive spending proposal in order to reach a settlement on the debt ceiling.

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A financial system crisis of magnitude greater than the 2008-09 debacle is predicted to occur if the United States defaults on its colossal debt, according to market analysts. Because of that many people who trade with US dollars in the FX market are afraid of declining the value of the USD. For this reason, some traders, according to Top Forex Brokers, have found a remedy and use swap in Forex trading, which involves the exchange of specified quantities in two currencies by the counter-parties. To make it more simple, suppose one side gets $100 million and the other receives $125 million, for example. In other words, the GBP/USD rate is 1.25. The agreement will finish with a currency swap at the original exchange rate or a different pre-agreed rate, which will conclude the transaction. Through that, as it’s shown in Clicktrades review, investors are able to get benefits through price fluctuations. Similar to the FX market, the stock market is now on pins and needles as it prepares to deal with a possible financial time bomb. Last week, prominent news sources in the United States focused their attention on the possibility of a default by a big real estate developer in South China; yet, by all measures, this is a danger of a considerably lesser magnitude. China’s financial regulators are keeping a tight eye on the situation and will not allow it to escalate into a systemic danger.

Many people are concerned about the potential consequences of the privately-held property developer Evergrande’s impending inability to repay the principal and interest on borrowed money, which includes corporate bonds and bank loans. But regardless of whether The city of Shenzhen where the business is headquartered, denies Evergrande’s bailout request and the company goes bankrupt, it has little effect on the financial stability of China’s system. The risks of this potential risk are exaggerated by overly excited media.

The company is providing discounts for its housing projects which are distributed across several Chinese cities, to boost liquidity. Evergrande declared on its website that it was going to pay interest on its onshore notes due on Thursday. However, the company did not specify the date it was planning to make a coupon payment for US currency bonds due within one month from the date of the installment of the loan.

The city government of Shenzhen as well as Beijing’s central government Beijing has not taken the initiative to help Evergande probably because they believe the business is responsible for the situation, due to excessive leverage and waste of borrowed funds that were redirected to automotive manufacturing, and various other fringe business as well as budgeting huge – not authorities.

Authorities could be keen to use this scenario to convey a message to investors, both locally as well as internationally, telling them that they need to exercise the right thing and make the debtors accountable. In the wake of a global crisis in 2008 that was caused by sub-prime mortgages within the United States, the Chinese government is likely not to permit a collapse of Evergrande to take over and sluggish the overall Chinese market. Last year, the central bank mandated that property developers reduce their debt levels to levels below certain criteria before they could borrow further funds from banking institutions.

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