Market Closed Date 26/09/2018


United States debt-ceiling crisis

The United States debt-ceiling crisis was a financial crisis in 2011 that started as a debate in the United States Congress about increasing the debt ceiling. Under US law, the United States Department of the Treasury cannot incur debt beyond the debt ceiling set by Congress. A failure to raise the debt ceiling would result in being unable to continue fulfilling all its obligations on time. The Obama administration stated that, without this increase, the U.S. treasury would enter sovereign default (failure to pay the interest and/or principal of U.S. treasury securities on time) thereby creating an international crisis in the financial markets. However contrary to what Obama said, if other spending were reduced enough (about 50%) soon enough, default need not occur.
The increase required the approval of both houses of Congress. Initially, nearly all Republican legislators (who held a majority in the House of Representatives) opposed any increase in taxes and proposed large spending cuts as part of the agreement to raise the debt ceiling. A large majority of Democratic legislators (who held a majority in the Senate) favored tax increases along with smaller spending cuts. Supporters of the Tea Party movement pushed their fellow Republicans to reject any agreement that failed to incorporate large and immediate spending cuts or a constitutional amendment requiring a balanced budget.
The immediate crisis ended on July 31, 2011, when a complex deal was reached that raised the debt ceiling and reduced future government spending. However, similar debates are anticipated for the 2012 and 2013 budget. After the legislation was passed by both the House and Senate, President Barack Obama signed the Budget Control Act of 2011 into law on August 2, the day of the deadline..

The international community characterized the political brinkmanship in Washington as playing a game of chicken and criticized the US government for acting irresponsible. For the first time in history, the long-term credit rating of the United States government was downgraded from AAA to AA+, and the US economy received a negative outlook.