The US solutions on debt ceiling and further recovery policy

Markets are closed at weekends but not political debates. Consequently, the need for constant vigilant remains essential. The political negotiations regarding additional borrowing in the US went quite smoothly last week and it seemed that the deal on a new $2.4 trillion borrowing was reached. However, according to the president Obama's remarks released on the last Friday’s evening, Speaker Boehner was going away from the final deal, therefore, setting up uncertainties regarding the further recovery policy of the US economy.

A short-term extension of the US debt ceiling which should be settled till the 2nd of August in order the US was able to avoid a default on its debt was considered alongside with the deficit reduction options. According to the political negotiations the $650 billion cuts from Medical, Medicaid and Social Security programmes could be achieved immediately and budget deficit might be reduced by $4 trillion over the next 10 years. Although the solutions to cut ineffective spending were worked collectively the disagreement between the Republicans and the Democrats aroused regarding the Democrats’ suggested additional revenues. It was proposed to raise $1.2 trillion budget incomes by eliminating loopholes, some deductions and initiating a tax reform that could have lowered tax rates generally while broadening the base.

The US default on its debt may ruin the whole financial system in a moment. Thus, the US has no choice but to increase its short-term debt ceiling. The financial markets judge politicians on their short-term solutions. However, should the current state of economy become worse to empower significant decisions whose change trends of long-term recovery.