New Financial Crisis Looms: Why Australia Should Keep Track of U.S. Shutdown, Debt Default

A looming national default may be on the horizon as the partial U.S. government shutdown caused the U.S. and other global market shares to decline. The shutdown is brought by a deadlock in U.S. Congress over "Obamacare" funding or the new healthcare law.

Most economists said the U.S. government shutdown might trigger another financial crisis like that of the 2008 economic meltdown. U.S. stocks plunged in Wall Street while China raised the issue of increasing U.S. debt limit to benefit the international economy.

According to a Xinhua news report, Vice Finance Minister Zhu Guangyao said protecting the debt is important to the U.S. economy and the rest of the world. China has $1.277 trillion in U.S. treasury bonds.

On Oct. 7, President Obama said the House of Representatives should vote for ending the partial government shutdown. The president reportedly said he will not negotiate while the partial shutdown was still in place and the debt limit increased.

The U.S. government shutdown may have little impact in Australia but if the superpower reaches its debt ceiling, it will slowly experience the downturn.

If the shutdown will last for long, the government cannot measure its economic impact because of lack of data. The U.S. jobs figures should have been released last Oct. 4 but because of the government shutdown, the Bureau of Labor Statistics failed to post employment data.

The U.S. government shutdown only affects the Australian economy by taking 0.1 percent off its GDP every week if it goes on any longer. The real danger may come in a few weeks when the U.S. will hit its debt ceiling.

Economists refer to the debt ceiling as the nation's credit card limit. Raising the credit limit is not about giving the U.S. government more spending power but it can pay off whatever it has spent.

The current debt ceiling is at $US16.699 trillion. It was breached in May but the U.S. treasury took necessary steps to continue borrowing. The measures will expire on Oct. 17. When this happens, the U.S. can no longer borrow money to pay off its bills.

According to The Guardian, no one knows what will happen when the U.S. hits its ceiling. Some economists say the U.S. will be fine while others believe it will be Armageddon. The U.S. Treasury released a report and concluded that the U.S. debt default will not only affect financial markets globally but also economic growth, jobs and consumer spending.

The U.S. Treasury painted a dire image when it said there may be a "recession more severe than any seen since the Great Depression."