Essential points on the US debt crisis

The US debt crisis will clearly dominate the agenda in the coming week, so it is worth summarising and expanding on the points we have made so far. In short, we continue to think that the Federal government will be able to avoid a default, but will probably still lose its AAA credit rating. Default might also only be averted at the cost of a temporary shutdown of non-essential government services that could tip the US economy into recession. It is important not to lose sight either of the underlying fiscal problems that have caused the crisis in the first place.