Reference Auto

So, even with Obama clearing the ceiling, it won’t be hunky dory for the US. For now, raising the debt limit will pave the way for the US to pay its lenders and government employees. The funds will also take care of social security and insurance benefits along with defence spending, among others.

What does this debt trap mean? The situation only indicates that the total tax the US government has been able to mop up is less than what it spends. Among the biggest chunk of its expenditure is the amount the US spends on defence.

The US government’s habit of meddling in world affairs has cost it dear. The US attacked Iraq, charging its erstwhile President late Saddam Hussain with possessing nuclear and chemical weapons. Iraq was conquered, Saddam was hanged but no nuclear or chemical weapon was found.

The end result: Billions of taxpayers money washed away.

The US then demolished the Taliban and stationed its soldiers in Afghanistan (and also in Iraq). It also spent millions to track down the world’s most-wanted man Osama bin Laden and managed to kill him.

The US also regularly sends its drones (automated aircraft) to destroy terror hideouts in Pakistan. It also grants millions of dollars to Pakistan to fight terrorists, which Pakistan conveniently uses against India.

Unless the US curbs its role as the world’s Big Daddy, it will fall into the pitfalls of a larger debt trap in the near future. It also has to try and judiciously rethink before giving defence grants to Pakistan and many other countries, which are known to divert these funds.

So, what lies ahead? The US needs to prune its defence spending substantially and may have to raise tax rates (which could be avoided by the government as it would see Obama’s popularity rating plummet to an unprecedented low).

This debt crisis could also prompt the US government to postpone pension and other payouts.

In the US, the two main parties, the Republicans and the Democrats have their view on government spending.

While the Republicans are conservative and want a cut in government expenditure by discontinuing certain schemes, the liberal Democrats want to continue welfare policies and raise the money through higher taxes.

So, unless the US government takes steps to raise income and trim expenses, like defence, it could create a situation similar to the 2008 global meltdown (in a much larger scale).

The US government will have to fill its kitty so that it finds a permanent solution (rather than just a breather) and the public may have to bear the brunt of higher taxes, an increase in the ambit of taxes which may lead to a fall in demand (as there will be little money left for other expenses), leading to a domino effect on the entire world.