... via discussions on increasing the US debt limit, increasing US gov't spending even further, via increasing taxes by 2 trillion dollars etc.

from

(snip)"Chart of the Day Reveals Government's Hard Choices Ahead

Assuming you are not among the top 10% of earners in the country, the economic elites who have benefited most from the stock market recovery, then the probabilities are higher that you know what it's like to have to make tough budgeting choices on a month-to-month basis. What will you give up this month? Morning coffee? Lunch? Maybe summer camp for one of the kids? Cable TV? The choices can be difficult.

As the August 2 deadline draws near, this terrific interactive from Bloomberg Government shows what is at stake without an agreement to raise the statutory debt ceiling. Bloomberg estimates that $172.4 billion in receipts and $306.7 billion in bills come due after August 2. So what gets paid and what doesn't?

On the chart below I made some hard choices. I decided not to pay "Other" agency expenses, I cut out funding for the Small Business Administration, axed Veterans Affairs programs, halted military active duty pay, eliminated tax refund payments, funding for the US Department of Housing and Urban Development programs and even made the tough decision to stop Temporary Assistance to Needy Families and nutrition services and Education Department funding. Incredibly, that still let a shortfall of $14.5 billion. What goes next? Unemployment benefits? Good luck with that. Federal salaries and benefits perhaps. Or interest payments on Treasury securities. Certainly not defense vendor payments; it's bad enough we already cut active duty pay for military personnel. Social security benefits? You and anyone whose name even remotely resembles or sounds like yours will never win another election in your lifetime (thanks, baby boomers!). Medicare and Medicaid? Same thing.

As you can see, it's quite the dilemma. Of course, with social mood where it is, none of this is very surprising. Is it coincidental that we have simultaneous NFL and NBA lockouts, a government shutdown in Minnesota with other states poised to follow later this year? The question is whether social mood is too negative to allow for a compromise. Increasingly, the answer seems yes.





and from

(snip)Senate Democrats are proposing to stabilize borrowing through sharp cuts at the Pentagon and other government agencies, as well as $2 trillion in new taxes, primarily on families earning more than $1 million year, according to a copy of the plan obtained by The Washington Post.

With debt-reduction talks under way between Obama and congressional leaders, Senate Democrats are unlikely to adopt the blueprint. However, it has gained broad support among those eager to chart a path to solving the nation’s budget problems without making politically painful cuts to Social Security and Medicare.

“The very strong feeling was we needed to get this into the conversation, because it provides an alternative view,” said a Senate Democrat familiar with the blueprint, who spoke on condition of anonymity because it has not been publicly released. “What’s striking is how modest the changes need to be to get us back on track.”

On Friday, Senate Budget Committee Chairman Kent Conrad (D-N.D.) visited the White House to brief Obama and Vice President Biden on the blueprint, which differs significantly from the framework under discussion with House Speaker John A. Boehner (R-Ohio) and other leaders.

“I explained to the President and Vice President how the Senate Budget Committee Democrats developed a plan that achieves $4 trillion in deficit reduction in a balanced and fair way,” Conrad said in a statement. “It is my hope the plan will help influence the bipartisan negotiations and help them reach a comprehensive and balanced deficit reduction agreement.”

Republicans dismissed the Democratic blueprint, saying higher taxes would be devastating to an economy already weighed down by a 9.2 percent unemployment rate. In their spending plan, House Republicans proposed to save $4 trillion entirely through spending cuts; they would also eliminate Medicare as an open-ended entitlement after 2021.

“If they’re calling for $2 trillion in tax hikes in the middle of a jobs crisis, it’s little wonder that it’s been 800 days since Senate Democrats passed a budget,” said McConnell spokesman Don Stewart.

Since early this year, Senate Democrats have struggled to draft a spending plan. Moderates refused to endorse any blueprint that included big annual budget deficits or big tax hikes. Liberals, meanwhile, opposed sharp cuts to social programs. Sen. Jeff Sessions (R-Ala.), the senior Budget Committee Republican, has relentlessly hammered Democrats for their failure to adopt a budget.

Although the new document is unlikely to be officially adopted, it was embraced by a majority of Senate Democrats when Conrad presented it at a closed-door luncheon earlier this week, aides said.

Under the blueprint, the top income tax rate would rise to 39.6 percent for individuals earning more than $500,000 a year and families earning more than $1 million. That group, which constitutes the nation’s richest 1 percent of households, would also pay a 20 percent rate on capital gains and dividends, rather than the 15 percent rate now in effect.

In addition to raising rates for the very wealthiest families, the blueprint proposes to obtain fresh revenue by targeting offshore tax havens and corporate shelters. It would also scale back the array of tax breaks and deductions known as tax expenditures, perhaps by focusing on the wealthiest households, which claim an average of $205,000 in tax breaks each year on average income of $1.1 million.

The blueprint would take nearly $900 billion from the Pentagon over the next decade — the same amount recommended by Obama’s fiscal commission. It would slice more than $350 billion from domestic programs. And it would produce interest savings of nearly $600 billion attributable to reduced borrowing.

Only about $80 billion would be cut from Medicare, Medicaid and other federal health programs, and nothing from Social Security."(snip)


Why does any of this matter outside the USA ? The 'gold foil hat' crowd would tell you 'Elementary my dear Watson' !!! If the republicans oppose raising taxes and oppose raising the legal US debt ceiling and the democrats oppose making MAJOR gov't spending cuts, then US gov't debt ( i.e. US treasury bills and bonds ) will be downgraded by Moody's, S&P et al. This downgrade will force a selloff of some existing US treasury bond holdings by foreign gov'ts and international banks. That attempted selloff will create a heavy demand for US dollars outside of the USA ... which in turn could prompt another international liquidity crisis ( and particularly so for european banks who are already illiquid as a result of their technically defaulted Greek gov't bond holdings )

The 'gold foil hat' crowd would also point out that if higher taxes are imposed on the richest 1-2% of Americans, including an increase in the cap gains tax, and if offshore tax loopholes are indeed closed, then you'll undoubtedly see those richest Americans selling off both US and foreign equity holdings in favor of tax free state Muni Bonds. While this will 'help' US states with huge budget problems of their own, it will also tank the US and foreign stock markets.