Top of the Agenda: Global Fears Over U.S. Debt Impasse from the CFR

Top of the Agenda: Global Fears Over U.S. Debt Impasse

As Republican and Democratic plans for raising the U.S. debt ceiling ahead of the August 2 deadline stalled, the dollar fell (WSJ) to a new 2011 low against the yen and a record low against the Swiss franc.

Wall Street bondholders worry that even if a last-minute agreement is reached, the political deadlock and lack of a significant deficit-reduction package could still spur credit rating agencies to cut the nation's long-held credit rating (Bloomberg) of AAA. Such a move alone, which could add $100 billion a year to government costs while increasing treasury yields, would likely damage U.S. credibility (Politico) on the global stage and shake international investors.

European stocks (Reuters), responding to the U.S. impasse and eurozone debt worries, fell for the third consecutive day on Wednesday.

At a speech at CFR on Tuesday, IMF Managing Director Christine Lagarde (FT) urged U.S. lawmakers to take bold fiscal action and raise the debt ceiling in order to avoid severe global consequences.

Analysis:

As partisan wrangling over the U.S. debt ceiling continues in Washington, fears are mounting that a default could trigger another global economic crisis. This CFR Issue Guide offers timely analysis on the global implications of the U.S. debt crisis.

Christine Lagarde, the newly appointed Managing Director of the International Monetary Fund, discusses the IMF's changing role amid growing concerns over U.S. and Eurozone debt with Tom Glocer, Chief Executive Officer of Thomson Reuters.

The Financial Times' Lexington column argues that holders of U.S. treasuries have few other places to go, and that it's never safe to bet against the world's richest and most powerful country.