Default disaster looming

The U.S. Treasury Department has said that if Congress does not raise the national debt ceiling by August 2nd, borrowed funds would not be available to pay debts, and the U.S. economy would be forced to default, a situation without precedent in its history. At present Republicans are unwilling to raise the debt limit unless Obama can promise significant spending cuts. Meanwhile, Obama is keen on keeping the government strong (and expensive) in order to haul the country out of the economic crisis. 

The new IMF chief Christine Lagarde said Sunday that there will be "real nasty consequences" for the global economy if the U.S. defaults on its debt obligations. "If you draw out the entire scenario of default, yes, of course, you have all of that -- interest hikes, stock markets taking a huge hit and real nasty consequences, not just for the United States, but for the entire global economy, because the U.S. is such a big player and matters so much for other countries."

US debt rose to $4.36 trillion under President Bush as a result of the wars in Iraq and Afghanistan as well as tax cuts. Under Obama an additional $3.9 trillion was added to the national debt as a result of his economic stimulus plan and decreased tax revenue during the recession.

Meanwhile, Treasury Secretary Timothy Geithner said on Sunday that many Americans will face hard times for a long time to come. "It's going to feel very hard, harder than anything they've experienced in their lifetime now, for a long time to come."