“US Public Debt Crisis: Will America Default? Latest Updates & Analysis”

UOnce again, the United States is plunging back into the psychodrama of the negotiations on raising the ceiling on their public debt. This political theater, which keeps the world economy and the financial markets in suspense on a recurring basis, has an air of deja vu. The actors change, but the scenario is always the same: without Congress’s agreement to raise the maximum amount that the US Treasury can borrow, the government risks finding itself short of cash by June 5, according to its latest assessment. The world’s largest economy would be de facto in default, which could trigger a major financial and economic earthquake.

The past allows us to remain moderately optimistic about this situation. Hasn’t the debt ceiling been raised 78 times since 1960? However, during the last crisis, the worst was narrowly avoided. In 2011, under the Obama presidency, procrastination with the right wing of the Republican Party had nevertheless led the agency Standard & Poor’s to withdraw its AAA rating from the US Treasury.

Once again, the worst is never sure, even if another agency, Fitch, placed Thursday, May 25, the credit rating of the United States on negative watch. In exchange for raising the debt ceiling, the Republicans are demanding clear cuts in federal spending, particularly in the payment of social assistance. A prospect to which the executive refuses.

As recurrent as it is, the situation is no less ludicrous. The United States is one of the few countries to have adopted this debt ceiling mechanism. This gives the Republican Party phenomenal blackmail leverage to demand a serious budget that it does not apply to itself when in power.

In 2017, former President Donald Trump did not hesitate to widen the deficits by deciding on a massive tax cut. The Covid-19 crisis has led his successor, Joe Biden, to continue to resort to debt, putting the United States on a dangerous trajectory.

Low politics

Expedients to this debt ceiling crisis are regularly mentioned. The first invokes the Fourteenth Amendment to the US Constitution, according to which “the validity of the public debt of the United States, authorized by law, (…) should not be questioned”. The second would be to mint a $1 trillion platinum coin, deposit it with the Federal Reserve, before issuing bonds to raise debt. Such solutions, fragile on a legal level, give an idea of ​​the ridiculous and artificial nature of the situation.

This is all the more dangerous because of the lack of room for maneuver of the Republican leader in the House of Representatives, Kevin McCarthy. The conditions of his election to this post, after fifteen rounds of voting, gave more weight and possibilities of blackmail to the populist ultra-right, which has the means to derail a compromise with the House at any time. White.

That the United States wants to prevent budget deviations and ensure control of its debt is completely legitimate. But resorting to a mechanism that resembles hostage-taking against a background of low politics, at the risk of disturbing global financial stability, is not up to the challenge. The political consensus on debt sustainability should be formed well in advance, on predictable rules, not on a game of lying poker, on which the fate of the global economy would depend.