US president has decided to end his holiday in Hawaii midway and is returning to Washington in order to avoid the so called fiscal cliff. If a solution isn’t find soon then taxes are set to increase and public spending is going to be decreased from the coming January 1, post which chances are that US economy will again go into recession.
Where Democrats and Republicans are at opposite ends on how to deal with the situation, the US treasury has announced the measures it’s going to adopt to avoid the eventuality of reaching legal borrowing limit set upon it.
US Treasury Secretary Timothy Geithner has sent an open letter to Democratic majority leader in US Senate Harry Reid saying that Treasury is going to apply extraordinary accounting measures. The move is going to provide the government with an additional $200Bn before hitting the borrowing limit.
The amount freed up by US Treasury is enough for the government to provide for about 2 months after December 31. The debt ceiling set by Congress on Government Borrowing stands at $16.4Tn.
– Temporarily stopping the financial assistance provided by Federal government to state governments
– Temporarily stopping new government debt investments made by state retirement funds for civil servants as well as postal workers and through drawing out from an emergency fund developed by the government to maintain the dollar’s valuation
Timothy Geithner has warned that if the aforesaid measures shall not be put In place then the US government does not even have enough cash to carry on till Monday and “the United States would otherwise default on its legal obligations”
The date of January 1, 2013 was set in 2011 to press upon the President and Congress the need to find measures through which money could be saved for the next 10 years. The possible fallout resulting from tax increases coupled with huge spending cuts is going to affect the most to households and businesses. As US economy will fall into recession, its repercussions will affect Global economic growth also.
Source: BBC News