What might happen on August 2nd?

Well- it’s the day the United States might go bankrupt! Read on to find out more and for links to some useful resources to aid a class discussion of this fascinating topic.

If the Democrats and Republicans in Congress can’t manage to successfully conclude their current budget negotiations, then this is the date when the American government will basically run out of money. Congress has to agree to raise the ‘ceiling’ on the US national debt (currently $14.3 trillion), but there’s a massive impasse between the viewpoints of the two sides. The ‘tea party’ Republicans are refusing to accept anything remotely resembling a tax increase and the Democrats are striving to save budgets for large areas of US government spending. It seems to me that the Republicans are being rather unreasonable here- refusing to even accept the closing of tax loopholes to help plug the gap in the country’s finances. Whilst many still hope for a deal to be reached, others are beginning to discuss who is likely to be the first to receive an IOU from the US government- pensioners, soldiers, or state governments?

For discussing this with your class, there are loads of great resources out there:

- This BBC World Service broadcast of ‘From Our Own Correspondent’ offers an excellent and clear introduction to the problem
- This Economist article gets across the main points in written form, and also discusses the reasons behind the intransigence of the politicians- especially the Republicans
- US states have already been severely affected by the recession, and Minnesota has already had to go down the default option- as explained in this Economist article