/ world today news/ On January 19 of this year, it was officially determined that the limit for increasing loans from the US government has been exhausted. America has long lived in debt. The debts of companies and banks, citizens and the state are growing. The federal budget is chronically unbalanced, spending exceeds revenue. The budget deficit is covered by borrowing (mainly borrowing in the form of US government bonds). The national debt is growing.
At the beginning of the 20th century, the national debt of the United States was measured in billions of dollars. Thus, in 1910 it was $2.7 billion, in 1920 – $26.0 billion, and in 1981 the debt exceeded $1 trillion for the first time. As of December 31, 2020, the national debt reached $26 trillion, and on January 19, the debt reached $31.4 trillion and reached its ceiling.
The debt ceiling refers to the maximum amount of public debt set by the US Congress. The US Congress has considered the debt ceiling more than a hundred times. According to the US Treasury, it has been revised 79 times since 1960 alone.
For four months now, passions have been simmering in the US over the debt ceiling and the need to increase it. The gist of the heated debate is simple: Democrats are demanding an automatic increase in the cap, and Republicans are putting their own conditions on the increase. The most important requirement is the establishment of certain limits on budget expenditures.
Many observers see the debates in the US Congress on the issue of the debt ceiling as a show. And they’ve already stopped worrying the way they did in, say, the 2000s, realizing that the show will definitely have a happy ending. Treasury Secretary Janet Yellen said the game should end on June 1.
Today, the majority in the lower house of the US Congress belongs to the Republicans. They, as always, are looking for support from their opponents – the Democrats on the issue of limiting budget expenditures and the government debt ceiling. This time, however, no consensus was reached.
President Joe Biden has joined in solving the problem. The White House held talks on May 19 with congressional Republicans, but they also did not yield results. House Republican Speaker Kevin McCarthy said it was time to end negotiations, and the White House acknowledged the existence of “real differences”.
Most experts tend to believe that Congress will decide to raise the debt ceiling. And it could happen on the last day of May. Relatively speaking, the probability of such a scenario is at least 90%. And behind the remaining 10% is a sovereign bankruptcy. And then the most serious consequence for America as a great power will be the rapid decline of the US dollar.
Within that 10 percent, however, there is another scenario. On May 9, Biden said he was exploring the possibility of avoiding bankruptcy without congressional approval. According to some experts, the 14th Amendment to the US Constitution allows him to do this. However, such a move could lead to lengthy litigation.
„It will be a constitutional crisis,” Janet Yellen said in response to a question about whether Biden could raise the national debt ceiling on his own. But of the two evils, bankruptcy is probably worse than constitutional crisis. “U.S. default will lead to economic and financial disaster,” said the head of the Ministry of Finance.
So, there are three possible scenarios: 1) there is a sovereign bankruptcy of America due to the fact that no decision will be made to raise the debt ceiling; 2) there will be no sovereign default, the president himself will decide to raise the ceiling, but in this case there will be a constitutional crisis; 3) there would be no national debt for the reason that Congress would decide to raise the ceiling anyway.
The third option is the one ending with a happy ending. However, can it be considered a happy ending of the show? Turns out it can’t. The consequences for America will be very sensitive.
On May 19, many American media spoke about these consequences. And almost all authors referred to the assessments of the American expert Ari Bergmann (Ari Bergmann), founder of the consulting firm Penso Advisors for strategic management and risk management.
Let me explain in simple terms the essence of his reasoning. All US Treasury bank accounts were zeroed out or “dried up”. By getting the right to issue new tranches from the Treasury Department, the starving Treasury Department will throw up to $1 trillion worth of bonds into the market.
With the Federal Reserve’s current key interest rate, Treasury rates will be very attractive and demand for new tranches of paper will also be high. To purchase the securities, a large amount of cash dollars will be needed, which will be transferred from various sectors of the US economy to the bank accounts of the US Treasury (first of all, these are accounts opened at the Fed).
The effect of such operations can be called “quantitative tightening”. The Federal Reserve has withdrawn dollars from the US economy before, but in small portions. But after the debt ceiling is raised, the withdrawal will be very large.
Bergman has been quoted by many in the American media as saying: “My biggest concern is that when the debt limit issue is resolved — and I think it will be — you’re going to be faced with a very, very deep and sudden outflow of liquidity… And we’ve already seen that kind of decline in liquidity really negatively affects high-risk markets such as capital and credit markets.
The US economy is on the brink of a serious recession. Any event can provoke it. And raising the government debt ceiling could be the cause that will trigger the economic crisis in the US. For example, at the end of June or in July.
Translation: ES
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