What follows the USA debt crisis now?

Posted By: Peter Evans
Date Posted: 01/08/2011

We are almost there! The Leaders of both houses of Congress in the USA have reached an agreement over an increase in the debt limit. It still has to go through the process of winning the majority of votes in both assemblies of course - but I would not expect that to fail in the final round of voting.

The problem that follows then is whether the Credit Rating of the USA will be reduced. This is not quite as straightforward and as easy to predict as the debt issue as it might appear – that’s because there may be an intention to use what has happened in the USA as a stark warning to other governments to tackle their debt problems more urgently.

However, this action is less likely due to the effect it will have on world trading - where the almighty dollar is the pre-eminent currency employed and any reduction in its value would put the price of goods up for most of the world.

As an alternative, I believe we shall hear warnings delivered on the back of the recent experiences; these have certainly highlighted the need or desire for governments to keep within sensible limits of what they can afford.

You may ask: “Why does this matter to us?” – in Rochdale?

It matters because it will demonstrate whether the UK has, so far at least, adopted a sensible strategy for reducing its debts. This will have a direct impact upon every resident. Whether the spending cuts are pitched wisely alongside the systemic change to increase the size of our wealth-creating industries (transferring jobs away from service areas back into production jobs) and whether this steadily improves our nation’s prospects to bring better times for us all.

If you see other countries in Europe suddenly having a much worse time of it you will know the answer. If you compare recovery rates across Europe especially (alongside failure rates too of course) – you will realise the correct answer also. Whether you prefer to ignore all of this and seek to disrupt our passage leading to a brighter future is down to you as well!