US Debt Ceiling Crisis

US Debt Ceiling Crisis

News: The US government may soon stare at defaulting on its borrowings if the Congress doesn’t raise the nation’s debt ceiling.

What is Debt Ceiling?
 The debt ceiling, or debt limit, is the total amount the US government is allowed to borrow to finance its expenditure, such as paying salaries and welfare allowances.
 Currently, this limit is at $31.4 trillion. The Republicans, who have a majority in the House, are refusing to raise it unless the Democrat-run government agrees to their demands, which include a significant cut in spending.

What are the consequences of US defaulting on its borrowings?
 Experts say the dollar would weaken, the stock markets would collapse, and millions might lose their jobs.
 The US’s credit rating would be downgraded, making future borrowing more expensive.

How does it impact the Indian Rupee?
 The rupee could slip further as there is more demand for the Dollar as the currency is considered safe haven which can withstand economic shocks and uncertainty.
 Our imports will become expensive as Dollar gains strength.
 Moreover, the US Fed will announce new interest rates. There has been 10 consecutive interest hikes in the past year.
Source – Indian Express, Moneycontrol and First Post