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Buyers should rest easy about Obama's debt plea

Obama signs healthcare Act

With the federal debt creeping closer to the $14.3 trillion ceiling, the apocalyptic scenario of a government default is surely unthinkable.

President Obama has urged Congress to sanction an increase in the debt ceiling to record levels or see the US plunged into an even deeper recession than the one it has just emerged from.

Democrats have also warned that a default on the national debt would not only see the cost of borrowing soar for the federal government but for anyone raising finance to start or buy a business too.

Speaking earlier this week, Obama warned: "If investors around the world thought that the full faith and credit of the United States was not being backed up, if they thought that we might renege on our IOUs, it could unravel the entire financial system.

"We could have a worse recession than we already had, a worse financial crisis than we already had."

Timothy Geithner, the Treasury Secretary, says he can juggle the accounts until early August to keep the debt below the current ceiling.

Still enjoying a Bin Laden bounce, the President is in a stronger position to gain assent than a few weeks ago. But that is surely irrelevant as one would hope an issue of this magnitude transcends something so trifling as Obama's poll rating.

Republicans will try to make the price of their assent an agreement to deeper, faster spending cuts.

However, both Republicans, given the consequences of defaulting for the economy and their electoral prospects, and the Democrats, who will be mindful of appearing reticent to cut spending given the stratospheric deficit, will surely be ready to compromise in the national interest - won't they?

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