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 caused the federal government to be on 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 continue to pay 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 its 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.
In order to win the support of the hardliners in his party, McCarthy agreed to amend the legislative rules of the House of Representatives when he ran for the post of Speaker of the House of Representatives. difficulty.
In an interview with the US media recently, 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 unrestrained 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 a few days ago that he would not negotiate on the conditions for raising the debt ceiling, and that Congress should resolve the debt ceiling issue without attaching any conditions.
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 disastrous impact on 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 money” is difficult to sustain
The U.S. Congress has continuously raised the public debt ceiling in recent decades, bringing it to a record level of $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 be difficult to maintain a stable financial situation.
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 canceled the debt ceiling seven times, and raised the debt ceiling twice in 2021. According to data from 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 default, 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, reaching 118% 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 problem of the debt ceiling, 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 will not only affect 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 projects, 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 U.S. economic recession is expected to increase, casting a shadow over the U.S. economic outlook.
Snyderman pointed out that the struggle in Congress over the debt ceiling may be the “biggest threat” facing the US economy this year. She said the stalemate in the debt ceiling negotiations will lead to Congress being unable to introduce stimulus measures to prevent the economy from falling 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 time and defaults on its debts, 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 the 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 the global financial system being in trouble.