City Experts: 'US Will Raise Debt Ceiling'
Monday 25 July 2011 16:56, UK
As the US fights over whether to raise its $14.3trn debt ceiling or not, Sky News has asked City experts what they think will happen to the world's largest economy.
The Republicans and the Democrats are due to come to an agreement on August 2 over how to tackle the US' mounting debt crisis.
The deal is crucial as it could save the country from defaulting, and President Barack Obama has argued that if the talks fail, it would lead to an economic "armageddon".
The US borrows money at an alarming rate; the equivalent of $2m per minute, or $3bn per day.
But is its economy actually likely to go bust? And if it does default, what will happen to the rest of the world?
Nick Parsons, head of market strategy, National Australia Bank
What will happen on August 2?
"An agreement will be reached and the new debt ceiling will be just over $2trn; this decision would give the US three years, enough to calm the markets down temporarily.
"Markets always want a final solution, but they know this is not going to happen and that will be the acceptable conclusion for them."
What would be the impact of a US default?
"If it defaults it's important to remember it wouldn't be a default forever, so there will be a short-term disruption in the markets.
"There would not be an immediate rise in bond yields and it would be worse for the stock markets than for the bond markets.
"People would not be immediately affected but consumer confidence would drop and there would be a sense of 'doom' - but again, this would be short term and not as dramatic as many say."
Lena Komileva, global head of G10 currency strategy, Brown Brothers Harriman.
What will happen on August 2?
"There is a risk of a US downgrade, so the best thing to hope for is that it raises the debt ceiling."
What would be the impact of a US default?
"A default could potentially be dramatic and a US default would have an impact on global growth.
"The larger economies in Europe such as the UK would see a currency volatility hand-in-hand with a sharp sell-off of bonds."
Manoj Ladwa, senior trader, ETX Capital
What will happen on August 2?
"The situation will be resolved by then, they will have to come to a short-term agreement, but then perhaps review it in six months time.
"There will be a lot of volatility on the markets if there is no agreement, and a sharp drop in the markets if debt is not raised."
What would be the impact of a US default?
"The markets seem to be optimistic that it won't happen, but if it is not resolved we can expect a sharp drop in equity prices."