US debt default could sink the world economy, but Republicans and Democrats can’t agree to act


The US is still on course to default on debt repayments by the middle of October. The resulting financial shockwaves could sink the world economy

Amid the ongoing rows between Democrats and Republicans over debt and borrowing limits, Congress did manage on Thursday night to pass a short-term fix to prevent a shutdown on Friday night of the federal government.

But the threat of default on international repayment remains, as the two parties play a dangerous political game of chicken.

A US default, which would be unprecedented, would lead to “complete chaos,” said Jacob Funk Kirkegaard, at the Peterson Institute of International Economics. “It’s a bomb – you basically blow up the global financial system.”

The debt ceiling – a curb on how much the federal government can borrow to service debt has routinely been raised by Congress when necessary since it was established in 1917.

But with rancour between the Democrats and Republicans reaching a…

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