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Tuesday 17.07.2018 | Name days: Aleksejs, Aleksis

SEB: U.S. politic kitchen worries financial markets

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European countries trouble with budget deficits and sovereign debts rank among the major issues of great concern for financial markets, however, now the biggest fear is over the U.S. inability to reach an agreement on raising its debt ceiling and cutting expenditure.

Baltic news, News from Latvia, BNN-NEWS.COM, BNN-NEWS.RUAccording to the best case scenario, Washington finds a compromise before August 2, otherwise if the American politic deadlock is ongoing, there are severe risks that serious turmoils will shake financial markets, especially, in Greece, says Lars Gunnar Aspman, senior analyst at SEB Investment Strategy.

European debt crisis, especially, that of Greece, have already long been the cause of worry on financial markets. However, now it is planned to turn more attention to developing mechanisms to fight the crisis. Also banks have agreed to direct 40 billion euro for that matter. The U.S. politic debates on raising the debt ceiling (currently 14.294 US dollars) and budget deficit cuts for the next 10 years are now the issues that shake financial markets the most.

Raising debt ceiling is not such a unique thing. It has after all already been raised for 74 times since 1962 and 10 times since 2010. However, this time the matter has triggered serious politic conflicts, the analyst says.

He also adds as soon as the debt ceiling is hit, which takes place on August 2, the U.S. State Treasury will no longer be able to borrow until the Congress votes for raising it again. Talks have come to a stalemate, as the Democrats and the Republicans cannot do away with their apple of discord.

The Democrats want the debt ceiling to be raised 2.4 trillion US dollars, as it would allow Obama to escape tough talks during the next presidential elections. They also want to cut spending by 2.7 trillion US dollars yearly, at the same time being no longer so strict about tax increases.

If Washington fails to come to an agreement, it will cost the country a lot. Most likely, its credit rating will be slashed, boosting borrowing costs even more. Spending would be cut considerably and the already weak U.S economy would receive yet another serious blow to have a damaging effect also on the whole global economy. China would lose huge sums from its U.S. bonds worth 1.1 trillion US dollars, Lars Gunnar Aspman says.


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