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‘US has to raise debt ceiling’

US lawmakers have “absolutely no choice” but to raise their debt ceiling from the current 14.3 trillion dollars to avoid a possible “massive financial market fallout”, Rian le Roux, Old Mutual Investment Group SA (Omigsa) chief economist, says. The group held its quarterly economic outlook briefing on Tuesday.

The debt ceiling could be raised by just over two trillion dollars, Le Roux said.

The bigger issue for the US however was to address their very high debt.

“You can get a debt ceiling but still get downgraded,” Le Roux suggested.

The US debt ceiling has been raised 77 times in the past 94 years, Omigsa figures showed.

US lawmakers are still struggling to reach an agreement on whether or not to raise the 14.3 trillion dollar debt ceiling, which is reportedly causing credit downgrade threats. The US debt concerns have also been weighing on global stocks.

“The real issue now [in the US] is longer-term deficit or debt reduction as Baby-Boomers age and debt threatens to become unsustainable,” Le Roux said.

The US was in for a “long period of structural adjustment”, Le Roux noted. He was however confident that despite all the economic woes, the US would not experience a “double dip” recession.

The US would grow 2.5% in 2011 and 2.6% in 2012, Omigsa forecast. The euro area was seen growing a modest 1.9% in 2011 and 1.5% in 2012.

The main risks to euro zone growth were a sustained economic stagnation which could cause renewed fiscal deterioration, and political or popular opposition to fiscal austerity. - I-Net Bridge

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