China News recently reported from New York that the United States has moved steps closer to a new “Fiscal Cliff.” The on-going two-party fight on the debt ceiling issue has pushed the world’s largest economy toward the edge of default. Many countries have issued warnings that the situation could, potentially, be worse than that of the Lehman Brothers bankruptcy in 2008, which triggered a global downturn. China and Japan are the two primary overseas creditors, holding US$2.4 trillion in U.S. government bonds. On numerous recent occasions, their government officials called for an immediate resolution of the debt crisis. Economists have predicted that, following a U.S. default, credit ratings will be lower, interest rates will be higher, the U.S. dollar will depreciate, bankruptcies will occur in the banking industry, and the stock market will go into free fall. The Chicago Volatility Index for futures has gone up by 22 percent since October 1 and the International Monetary Fund also warned of “serious damage” to the world economy.
Source: China News, October 10, 2013