/View.info/ “They are trying to use a stick”. With these words, economists explain the spectacle that the American authorities, both the White House and the Congress, are currently playing in front of the whole world. There are public statements that the US is in danger of bankruptcy, which means disaster for the entire world economy. Why is this nothing more than a provocation, and under what conditions will the US really be ruined?
The US government risks running out of money as early as June 1, Treasury Secretary Janet Yellen warned in a letter to congressional leaders. US President Joe Biden is also worried that the country is heading for a debt ceiling crisis. This is nothing more, nothing less than the bankruptcy of the USA.
It is curious that back in April there were expectations that the risk of bankruptcy would appear only in August, but now the deadlines have been shifted. The reason, obviously, is the sharp drop in revenues in the US budget. “After examining recent federal tax revenues, our best estimate is that we will not be able to continue meeting all of the government’s commitments until early June, and possibly until June 1 at the earliest, unless Congress raises or suspends the debt limit before that,” Yellen wrote.
“April is usually the month when there are the biggest revenues in the budget, as last year’s taxes are paid this month (April 18 is the deadline). It appears that the amount of revenue was less than expected, so the money in the US Treasury accounts will run out sooner. The burden on the budget has increased due to the sharp increase in interest rates, and servicing the government debt is becoming more and more expensive,” explains Elena Belyaeva, an analyst.
The debt ceiling debate has become a traditional issue in Washington. However, the country’s authorities have never defaulted, in the end they have always agreed and Congress has raised the national debt ceiling. Each time, however, there is a theatrical performance describing the dire consequences that can result from an unprecedented default. And the whole world is watching. “Of course, we monitor everything very carefully, all our fiscal departments,” said Dmitry Peskov, the Kremlin press secretary.
Why do economic and political elites around the world follow the ups and downs of the US budget if the outcome of these discussions is known in advance?
Yellen warns that even the threat of bankruptcy could shake the markets and the US economy. “We have learned from past debt ceiling impasses that waiting until the last minute to suspend or increase the debt limit can seriously damage business and consumer confidence, increase the cost of short-term borrowing for taxpayers and negatively impact credit ratings of the United States,” Yellen wrote.
She clearly alludes to the history of 2011. “Then the increase in the government debt ceiling was most dramatic, the country was close to technical bankruptcy. Then the American economy lost the maximum credit rating (AAA) from S&P, and the financial markets were quite turbulent,” says analyst Artyom Deev.
The national debt ceiling, introduced in the US more than a century ago – in 1917, is constantly rising. Since 1960 alone, it has been revised about 80 times, Deev points out.
In order for Americans to afford to maintain a high standard of living, they must borrow more and more. Other countries pay for their lives through the circulation of the dollar that is printed in the United States. “In 10 years, the US national debt has nearly doubled to $31.5 trillion. Since the pandemic in 2020, the ratio of public debt to GDP has jumped from 107% to 128%, in 2023 this figure may exceed 130%,” says analyst Oksana Kholodenko.
Bankruptcy is total when the state has nothing to pay its debts. “In the case of the US, we are talking about the risks of technical bankruptcy, when there is no money at a certain moment, but then there will be. That is, technical bankruptcy is a kind of pause. In addition, it does not mean that all factories are immediately closed and state property will go under the hammer. In fact, you will most likely see US Treasury bond payments only delayed,” Deev explains.
However, the economic situation in the US is clearly not cloudless. “Industry began to bring less revenue, the banking sector faced a severe crisis. These and a number of other fundamental problems could bring the US economy to bankruptcy. But that won’t happen tomorrow. So statements about the possibility of bankruptcy as early as June 1 are nothing more than light blackmail on lawmakers by the White House administration. That is, roughly speaking, they are trying to poke Congress with a stick to move there,” says the expert.
According to him, in general, all this noise about the ceiling of the national debt should be taken only as a bargaining process between the two largest political parties in the United States – Republicans and Democrats. “It’s just that under the terms of the US legal system, to increase the influence of your party, you have to instill more terror in the voters – that’s why we see this dramatic production every time,” says Deev.
“The discussion on the ceiling of the national debt will most likely end with the traditional agreement on its increase this time as well. The US economy needs fiscal support against the backdrop of increased recession risks,” says Kholodenko.
According to her, for a full-scale, rather than a technical, bankruptcy to occur, a global financial crisis, coupled with a dumping of US government debt bonds by international holders, would be required. A similar scenario is possible if geopolitical and foreign trade problems escalate, she says.
Russia has already divested from US bonds, China has seriously reduced investments in US government debt, as have some other countries, but so far this is not enough.
Translation: V. Sergeev
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