There is clear evidence that crashing through the debt ceiling will not only have a negative impact on the U.S. economy, but will cause havoc in the global economy as well. If the United States does not extend its borrowing authority before 12:01 AM Thursday, it will be a sign to global investors that U.S. lawmakers are not committed to paying the nation's debt obligations.
To answer the lingering question, no, the U.S. will not default on its loans the moment it hits the debt ceiling limit, but it will no longer have borrowing authority, which puts its ability to pay off future debt obligations in jeopardy because the U.S. Treasury only has so much money on hand to pay current obligations. The United States does not want to get to the point where it can only rely on cash on hand.
Frustration among American citizens is at a boiling point, but we sometimes forget that the entire world is watching and countries around the globe are just as anxious and frustrated as we are.
Check out this editorial from The Australian:
WITH Thursday's denouement in the US debt crisis almost upon us -- potentially leading to a crippling default that would do significant damage to the global economy -- it is hard not to believe lunatics have taken charge of the asylum in Washington.
Never before has support for either major party plunged to the 24 per cent approval rating that Republicans enjoy as they prosecute their campaign against President Barack Obama over Obamacare. Yet Tea Party hardliners remain unflinching, waging war not just against Mr Obama but also lashing out at Republican colleagues who even hint at compromise, such as former presidential candidate John McCain and vice-presidential candidate Paul Ryan. Public approval for the US congress has slumped to 11 per cent. So it is no surprise our sister paper, The Wall Street Journal, has concluded the government standoff is a "dumb war" and "a march to nowhere". Yet Mr Obama, despite grim projections of what will follow failure to lift the $US16.7 trillion debt ceiling, turned his back on Republican peace feelers offering a deal to increase Treasury's authority to borrow through to November 22 in return for an agreement to negotiate overhauling the budget. Emboldened by the Republican civil war and the party's pitiful polling, Mr Obama's response was there could be no negotiations until the government was reopened and the debt ceiling was unconditionally increased. There is still time to fix the mess, but that will not happen unless both sides show greater willingness to compromise and understand how much damage the standoff is doing to America's standing.