Xinhua News Agency, Washington, January 19 (International Observation) The old drama repeats itself, and the United States is caught in the debt ceiling crisis again.
Xinhua News Agency reporter Xu Yuan
The US federal government hit the debt ceiling on the 19th, forcing the Treasury Department to take special measures to prevent the federal government from defaulting on its debt. Analysts pointed out that the U.S. federal government has frequently hit the debt ceiling due to unrestrained spending, and the bipartisan disputes in Congress have brought the federal government to the verge of debt default repeatedly, causing heavy damage to the U.S. and global economies.
The Debt Ceiling Crisis Returns
U.S. Treasury Secretary Yellen said in a letter to House Speaker McCarthy and other congressional leaders on the 19th that since the federal government’s outstanding debt will reach the upper limit on that day, the Treasury Department will take special measures to close the bond between January 19 and June 5. The “suspension of bond issuance period” was launched during the period to suspend the injection of new funds into some welfare funds. This move will help the Treasury Department to continue to make other federal payments and avoid a default on the federal government’s debt if the overall debt level cannot be increased.
The debt ceiling is the maximum amount of debt set by the U.S. Congress for the federal government to meet incurred payment obligations. Hitting this “red line” means that the U.S. Treasury Department’s borrowing authority has been exhausted. Since 1985, the U.S. Department of the Treasury has taken special measures to avoid debt default more than a dozen times, and the “drama” between the two parties in Congress over the debt ceiling issue has been frequently staged when the federal government is on the verge of default.
This is the Capitol Building in Washington DC, USA. (Photographed by Xinhua News Agency reporter Liu Jie)
In order to win the support of hardliners in his party, McCarthy agreed to change the legislative rules of the House of Representatives when he was running for the post of Speaker of the House of Representatives. difficulty.
In a recent interview with the US media, McCarthy compared the current US government to a spendthrift child who needs to lower his credit card limit. He said that “the debt ceiling cannot be increased all the time.” If the Democrats do not change their spending behavior, the Republicans will use the majority of the House of Representatives to block the increase of the debt ceiling, thereby “bankrupting the country.” He called on the Biden administration to negotiate with congressional Republicans on spending cuts.
But Biden categorically dismissed the proposal. He said recently that there will be no negotiations on the conditions for raising the debt ceiling, and Congress should resolve the debt ceiling issue without any conditions attached.
Analysts said that unlike previous congresses that were always able to avoid government debt default at the last moment, this “battle of wits” is more likely to end in a catastrophic outcome that impacts the US economy.
Rachel Snyderman, senior deputy director of the Bipartisan Policy Research Center, an American think tank, said that a debt default in the United States is “purely a political decision” because the government is fully capable of avoiding default through economic means.
“Eating more than enough food without extra money” is unsustainable
Congress has raised the public debt ceiling in recent decades, bringing it to a record $31.4 trillion. This is the result of a combination of massive tax cuts and unrestrained spending. If the U.S. federal government continues the policy of “eating more than you need,” it will find it difficult to maintain a stable financial position.
This is the White House filmed in Washington, D.C., the capital of the United States. (Photographed by Xinhua News Agency reporter Liu Jie)
According to data from the Congressional Research Service, a think tank of the U.S. Congress, since the end of World War II, the U.S. Congress has adjusted the debt ceiling hundreds of times. Between the 1980s and 2011, the debt ceiling soared from less than $1 trillion to $16.39 trillion. Since 2013, Congress has temporarily lifted the debt ceiling seven times and raised it twice in 2021. According to the U.S. Government Accountability Office, between 1997 and 2022, Congress has raised the debt ceiling 22 times.
The U.S. Congressional Budget Office predicted in May last year that in order to avoid debt defaults, the debt ceiling would need to be raised to $36.9 trillion by the end of fiscal year 2027 and further raised to $45.4 trillion by the end of fiscal year 2032.
U.S. government data show that the debt ceiling as a percentage of U.S. gross domestic product (GDP) reached 118% in 1946, then fell sharply to 32% in 1981, then climbed sharply again, and in fiscal year 2022 (September 2022 ended on March 30) soared to 125% at the end of the month.
Snyderman believes that the two parties in Congress must seriously work together to find a solution, not only to solve the most urgent debt ceiling issue, but also to discuss countermeasures for the broader fiscal challenges facing the US government.
Devastation spreads across the globe
Analysts pointed out that the US government’s frequent debt ceiling crisis not only affects the normal life of its people, economic growth prospects and fiscal health, but may also affect the stability of the global economy and financial markets.
For the American people, the debt ceiling crisis will pose a threat to their social welfare. Once the special measures are exhausted and the federal government defaults, the Ministry of Finance will be unable to reimburse the expenses of people participating in the federal social security and medical insurance programs, and the impact on people’s lives will be immeasurable. According to data from the Ministry of Finance, among the total federal government expenditures in fiscal year 2022, social security expenditures are the largest, exceeding US$1.2 trillion, and medical insurance expenditures also exceed US$750 billion.
At the same time, the current debt ceiling crisis occurred at a time when the US economic recession is expected to increase, casting a shadow over the US economic outlook.
A worker repairs sidewalk surfaces in New York, USA. (Published by Xinhua News Agency, photographed by Zhu Ziyu)
Snyderman noted that the battle in Congress over the debt ceiling may be the “biggest threat” facing the U.S. economy this year. She said the stalemate in debt-ceiling negotiations would lead to Congress being unable to deliver stimulus measures to prevent the economy from slipping into a deeper recession. The economic slowdown may reduce the federal government’s tax revenue, thereby further shortening the window period for raising the debt ceiling.
In addition, if the US federal government fails to repay its debts in a timely manner and a debt default occurs, the global economy and financial markets will face disaster. Gopinath, the first deputy managing director of the International Monetary Fund, said recently that the US government’s debt ceiling crisis will “inevitably” lead to an increase in the risk of the government’s credit rating being downgraded, which will bring additional risks to the US and other economies around the world.
Experts believe that the US dollar’s status as the world’s reserve currency stems from global confidence in the US federal government’s ability to repay its debts. Once the U.S. government defaults on its debt, it will inevitably trigger a crisis of confidence in the U.S. dollar and U.S. treasury bonds in the global market, which will lead to troubles in the global financial system.
