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Fed prepares for US default

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Fed prepares for US default

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With the August 2 deadline approaching, the US central bank the Federal Reserve is actively preparing for the possibility that Congress and President Obama will not be able to agree on raising the government’s borrowing limit.

If Washington could not borrow any more, the US would be in default, which Fed chairman Ben Bernanke has said would have a catastrophic effect on the world’s financial markets.

Right now the Fed is deciding which cheques it would sign and which it would not.

The Republicans in Congress are playing chicken with the White House on a deal, refusing to accept tax increases or even to allow Bush-era tax cuts for the wealthy to expire.

And the ratings agencies continue to voice their concerns; on Thursday Standard & Poor’s said again that there is a 50-50 chance the US’ AAA credit rating could be cut within three months, perhaps as soon as August.