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Monday, November 5, 2012

Austerity coming to USA? US 'fiscal cliff' would trigger cuts of up to 5.1% GDP

US debt clock (Alex Wong/Getty Images/AFP)As US public debt is about to rise over the limit of $16.39 trillion, analysts warn of the drastic damage it could create. Should the debt limit remain unchanged, the US economy will have to suffer austerity measures worth around $804.5 billion. The debt held by the public skyrocketed to about 102% of the US GDP in 3Q 2012. The ratio was higher only once in the US economic history – in 1945 when it reached 113% of GDP.Meanwhile, a new so-called “debt ceiling”, that was last raised by Congress in January 2012 to $16.394 trllion, seems to be not high enough, as the figures show that the room for further borrowing is becoming increasingly narrower. Earlier this week the US Treasury said the country was set to hit the debt limit by the end of the year. Meanwhile the Treasury has continued to unveil borrowing plans that include massive bond issues, which will inevitably drive the US economy deeper into debt. If the US Congress does not raise the debt ceiling in the next few months, it would result in an “onset of austerity measures worth 5.1% of American GDP,” or $804.5bn, Margaret Bogenrief from ACM Partners told Business RT.
“The world currently sits on the precipice of a debt cliff – the rate of debt growth for the United States is, economically, unsustainable and must be curbed within the next 5 years,” added Bogenrief. A combination of increased taxes and limited spending would pave the way out of the debt hole for the US, the ACM Partners expert added.

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