The decision to hike the debt ceiling came as a relief to the financial markets which were really concerned about the August 2 deadline. It could have led to a default by one of the most powerful economies in the World today, and the credit rating for the country would have rocketed down. What this would have meant for US was that the investors would no more have vouched for the destination, instead would have opted to invest in relatively lucrative and safer places around the World. This could have been disastrous for the dollar and the interests rates would have gone up if such a measure for not undertaken by US.
The immediate crisis seemed to have been dealt with, but the repercussions of the decision are bound to have a long term impact on the economy. There are certain things which US should really worry about. First and foremost is the ever rising debt for the country, which created a near default scenario for the country. Second, US should worry about more than trillion $ worth of its bonds that are with China. It is not very hard to imagine as to what will happen if the Chinese decide to sell these bonds in the market, which gives China such a huge bargaining power over US.
The US must get her act right if she wants to maintain a dominant position on the World stage. A developing country which is not much affected by US and her aid is sure going to feel good about the decreasing dominance of the super power. Default or no default, the incident has certainly decreased the credibility of US market. This might also force the US government to rethink about her policies in Middle-East, for now the demand of the situation would be cuts in the spending and the people will be quick to point out the extravagant defense expenditure being incurred in Afghanistan, Iraq etc.
What lies ahead is a very interesting scenario and the trouble for US is not yet over.
What do you think?
Source for Image: http://afr.com/