From our correspondent in the US,
Alexandre Hamilton will tear off his wig. Thursday, USA have reached their credit limit, to force the Treasury Department to meet its financial obligations by June 5. Beyond that lies great uncertainty with the showdown between Joe Biden and Joe Biden And the Republican majority in the House. and the threat of a historic default that could cause global economic catastrophe.
What is the loan ceiling?
This is the maximum limit the US government can borrow. The United States was one of the few countries to impose a ceiling, and in 1917 gave Congress full authority to raise it when necessary. The current range reached on Thursday is 31.4 trillion (31.4 trillion) dollars. Consider the stack of $100 bills connecting the Earth and the Moon. Total debt is $94,000 per American, or 121% of annual US GDP.
Bill Gale is an economist at the Brookings Institution, recalls an important point that illustrates “the absurdity of the current debate”: “When we raise the debt ceiling, it’s not a question of authorizing new spending, but whether Congress authorizes borrowing for government spending already authorized.” The irony of the American system is that when elected officials vote on budgets with revenues and expenditures, “they don’t automatically authorize borrowing to cover the difference.”
Why is it stuck today?
For a long time, raising the debt ceiling was an almost automatic process. But since the 1990s, it has become a political battle, especially when Congress is divided between two parties, as it is today. Republicans, who, when they’re not in the White House, don’t care about “mortgaging our grandchildren’s future by borrowing from China,” refuse to raise the ceiling without sound budget cuts. Father of the family. Joe Biden and the Democrats are using an American doctrine summed up by left-wing economist Paul Krugman: We are not negotiating with “economic terrorists.”
Why isn’t America in default today?
“When we hit the debt ceiling, the Treasury is using accounting tricks to postpone doomsday,” continues Bill Gale. These are the famous “extraordinary measures” of savings announced by Secretary Janet Yellen. Specifically, the suspension of payments to several pension, health or disability funds for public officials and ex-servicemen, as well as a “credit suspension period” until June 5. Only then do the real dangers begin.
Has America ever failed?
If the bank notes read “In God We Trust,” the American machine operates under the motto “In Debt We Trust.” Except for an administrative error in 1979, America has never failed. This is why Treasury bonds are considered safe bets around the world.
What happens after June 5 without an agreement?
During the summer “government defaults on debt payments or other obligations such as military salaries, social security (pension) or Medicare (health care for the elderly”), details Bill Gal. The Treasury will no doubt try to set priorities, but there is a legal vacuum and it could end up in court. According to analysts at Bank of America, a default could occur “in late summer or fall” and last “a few days to a few weeks.”
Is Defect Really Possible?
In 2011, under Barack Obama’s administration, markets plunged in the face of the threat of default. For the first time in history, S&P downgrades US debt. A contract Found at the last second Raise the ceiling. As with nuclear deterrence, neither party wants to take responsibility for an economic disaster. But elected Republicans in the Freedom Caucus, who already put Kevin McCarthy through hell for being elected Speaker, may refuse to give in this time. Some have put on the table the possibility of the Treasury printing a platinum coin and setting its value at $1,000 billion. But Janet Yellen rejects this magic trick, which is controversial among lawyers.
What would be the consequences of default?
Mark Zandi, chief economist at Moody’s Analytics, predicts a “financial Armageddon.” Bill Gale sounded a note of caution: “The consequences of a major intentional default are unknown, but predictions range from “severe” to catastrophic. Loss of confidence in the dollar and Treasury bills, rising interest rates for households and a collapse in Wall Street — and therefore in individual retirement savings plans.” With changes on the financial planet. , which will spill over into the global economy just like the 2008 crisis. With economies already teetering on the brink of recession, it would be madness to risk another global financial panic,” warns the economist. “The elected are playing with fire. »
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