sovereign debt

The US Congress and Obama administration are under pressure of the largest US banks who call for a deal to increase the country’s debt limit, saying that even a short default could be devastating for the financial markets and economy. Congress and the White House face the need to raise the US debt ceiling, which stands at $14,300 billion.

The deadline for America comes on May 16 and the Treasury department has said that in the absence of congressional action, the world’s largest economy could default by early July.

The Japanese yen dropped sharply against majors after rating agency Standard & Poor’s downgraded the country’s sovereign debt rating to AA minus citing its mounting debt load.

The yen fell to a 15-day low against the US dollar, a fresh 2-month low against the euro, 3-day low against the pound, 2-day low against the Aussie, 6-day low against the Canadian dollar, 10-day low against the New Zealand dollar and more than a 9-month low against the Swiss franc.

Standard & Poor’s rating agency has cut Japan’s long-term sovereign debt rating today for the first time within 8 years since 2002 explaining that the country's government lacked a coherent plan to tackle its mounting debt.

The rating for the largest Asian economy was downgraded to AA-, three levels below the highest possible rating, which serves as a warning sign for other developed nations such as those in Europe and the United States, of the growing concerns about the debt built up during the global financial crisis.

America has mounted further up the hill of its sovereign debt in fiscal 2010 with net liabilities reaching over $2 trillion according to a US Treasury report.

The central bank’s Financial Report of the United States that uses corporate-style accrual accounting methods to Washington reveals that government's liabilities exceeded assets by $13.473 trillion. That compared with a $11.456 trillion gap a year earlier.

American taxpayers who are at present about to pay some $145 billion in housing losses connected to Fannie Mae and Freddie Mac loans may face higher bill to cover the debt of the mortgage giants.

According to the Congressional Budget Office, the losses could balloon to $400 billion. And if housing prices fall further, the cost to the taxpayer could hit as much as $1 trillion.

The global economic growth remains vulnerable to sovereign debt risks and a second downturn, warned Chinese Premier Minister Wen Jiabao on Monday and underlined that his own country remain on track.

Wen said that it is still early for the nations to consider exiting their stimulus spending.

"All countries must coordinate together and strengthen support to the economy. There cannot be the least relaxation," he told a meeting with Japanese business leaders in Tokyo.