Economists warn of severe impact of US debt default

The US edged closer to a catastrophic default Wednesday with Democrats and Republicans still divided over how to raise the debt ceiling as the country struggles with $14.3 trillion of debt. The US is in danger of losing its prestigious triple A credit rating for the first time in its history as Democrats led by US President Barack Obama lock horns with Republicans over tax and spending cuts demanded by both parties as part of a deal. The US faces the prospect of running out of money to pay its bills next week, a situation that could trigger chaos in the global markets and have a catastrophic impact on global economic growth. Meanwhile, regional economists have also warned of dire consequences if a resolution is not reached by the August 2 deadline, pointing to the impact on everything from interest rates to credit cards and loans. Article continues below "The impact of a US default would be severe not just for the GCC but for the stability of the entire global economy. There would be severe ramifications for the dollar, interest rates and institutions holding US assets," said Simon Williams, chief economist at HSBC Middle East. Gulf investors are also looking on nervously as a lack of local catalysts leave the region's stock markets vulnerable to the political and economic volatility in the US. Haissam Arabi, chief executive and fund manager at Gulfmena Investments, said there was little the region could do but wait and see what happens. "We are totally at the mercy of global markets and commodity prices like never before. Global sentiment is driving the local bourses and investors are not paying attention to micro-economic issues," Arabi said.