A Risky “Political Game”

U.S. President Obama delivered a national address on the evening of July 25 regarding the negotiation on America’s debt ceiling and warned that the U.S. government is “dangerously close to breaching its debt ceiling”* and that the two parties must make compromises to avoid any consequences of irresponsibility.

Although, according to Obama, the situation in America’s debt-ceiling negotiations doesn’t look promising, most people hold the opinion that a compromise between the Democratic Party and the Republican Party will be reached by Aug. 2.

So after all, will America really breach its debt ceiling?

Breaching a debt covenant means, in other words, a default on its debt, or simply not paying back what it has borrowed. This is common in a commodity society. But a default on sovereign debt is on a higher level — it is the behavior of debt breaches of the political entities. Argentina and Iceland have already experienced breaches of sovereign debt, and currently Greece and Spain are also running the risk of debt breaches.

By May 16, 2011, America had already reached its debt ceiling of $14.29 trillion set by the federal government. If Congress fails to raise the debt ceiling by Aug. 2, the government would spend more than it is allowed, and a “technical default” on the federal debt would become reality.

If it wasn’t for the mutual impediment between the Democratic Party and the Republican Party, theoretically speaking, debt breaches would never happen in America, because the currency used by the world’s major developed countries, like America, is a universally accepted means of liquidation, and in theory the government could print as much money as they want in order to pay back its debt.

Therefore, when Obama called the deadlock in this debt-ceiling negotiation a “political game,” he was telling the truth.

*Editor’s Note: This quote, accurately translated, could not be verified.