/ world today news/ The situation with the overwhelming national debt of the USA is getting out of control again. The ceiling does not allow the loan to continue. Congress is required to raise it again. If this is not done by June, the country will go bankrupt for the first time since 1979. According to the forecast of the White House, the stock market in this case will collapse by 45%. The economy is preparing to collapse.
They broke through the ceiling
The new record is $31.8 trillion. The ceiling is 31.4 trillion. The Treasury Department has taken emergency measures to resume operations, and the White House has called on Congress to fix the legislation. It became a point of contention between Republicans and Democrats.
In the event of a default, advisers to the current administration calculated, GDP would fall by 6.1%, 8.3 million people would lose their jobs. According to some analysts, the figures were inflated to push the parties into negotiations.
Yields on Treasuries (U.S. government debt) jumped sharply as investors demanded a premium for the lack of a debt deal.
Impact on all sectors
As the White House Council of Economic Advisers warned, bankruptcy would cause a 45% crash in the US stock market. This will lead to a deep recession comparable to 2008.
Analysts state that the stock market is at a crossroads, the risks are quite high.
A number of leading indicators point to a slowdown in the economy and a continuation of this trend in the foreseeable future, says expert Andrey Alekseev.
“Shrinking global trade and massive problems with regional US banks will make lending to small and medium-sized businesses less affordable. At the same time, still high inflation will prevent the Federal Reserve from easing monetary policy. Shares of all sectors of the economy will show negative dynamics,” the analyst emphasizes.
Such a powerful shock as bankruptcy will not pass without consequences.
“Inflation will jump, the dollar will collapse. The biggest holders of US bonds, such as China, Japan and the UK, will sell them at bargain prices. The whole world will flee dollar assets. Most likely to gold,” describes the most the gloomy scenario, the analyst Nataliya Milchakova.
Problems for everyone
Difficult times with such a development of events await the entire world economy.
“Commodity futures, including oil, will collapse. China, the largest trading partner of the US, will have problems. Demand for Russian energy resources will fall. The ruble will not hold back either. All developing markets will experience difficulties,” warns Milchakova.
But the probability of such a scenario is still small: analysts give no more than 0.5 percent. As soon as the debt reaches the ceiling, it is usually lifted – and the loan continues to snowball.
Downgrade
US debt is now 120 percent of GDP. In 2024, according to the IMF forecast, they will be 125, in 2025 – 129, in 2028 – 136.
Among the main reasons for this are tax cuts, and military spending, and the recession, and the pandemic, and finally, Biden’s economic policies.
Fitch placed the AAA long-term foreign currency default rating on the Rating Watch watch list with a negative outlook. This means a possible downgrade of the country’s rating.
China’s largest analytical agency CCXI has already downgraded the US sovereign credit rating from AAA to AA+.
The sharp contradictions between the two countries complicate the decision on the ceiling of the national debt, the agency explains. And they note that due to the ongoing banking crisis, the federal system is facing difficulties in choosing a course and economic instability is worsening.
Loss of authority
All this obviously does not contribute to the attractiveness of US government bonds and the dollar. Because of this, they are rapidly losing their authority both in world trade and in gold and foreign exchange reserves.
According to SWIFT, the dollar accounted for 40.12 percent of international payments in January. And in the reserves, according to the IMF, – 58.36 – a minimum for at least the last 27 years.
No one doubts that the entire world’s transition to a decentralized and dollar-independent system will accelerate. There will be supranational money, in particular BRICS. Possibly electronic. The launch of state digital currencies will accelerate, including the ruble.
Meanwhile, Washington is considering various options for exiting the crisis, including exotic ones. As stated in the report of “Roskongress” “Life on loan: the prospect of bankruptcy of the USA”, the country is seriously discussing the idea of solving the problem of the national debt ceiling by issuing a coin of one trillion dollars. Thus, they will move from the “printing house” to the “mint yard”. The Treasury Department, represented by Janet Yellen, rejects such a decision. But, as the study authors note, there are fewer and fewer alternatives.
Translation: V. Sergeev
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