China News Service, January 21 (Reporter Meng Xiangjun and Zhang Naiyue) On January 19, local time, the world witnessed the birth of a new historical record-the scale of US federal government debt exceeded the statutory debt ceiling of 31.4 trillion US dollars.

  It has to be said that the following screenshot from the "US Debt Clock" website has a certain commemorative significance, because this picture shows that the US debt has reached a record high of 31.5 trillion US dollars.

U.S. debt hits a new high of $31.5 trillion.

Image source: Screenshot of the US "Debt Clock" website

  At present, the debt ceiling issue is like a "giant bomb" hanging over the United States. Once it is detonated, it will not only have a severe impact on itself, but will also affect the entire world.

How did America get to this point?

Can the "lead" of the "debt bomb" be dismantled in time?

What would it mean if the US defaulted on its debt?

  A reporter from invited Li Haidong, a professor at the Institute of International Relations of China Foreign Affairs University, and Zhang Zhixin, an associate researcher at the Institute of American Studies at the China Institute of Contemporary International Relations, to explain.

Man-made crisis, the consequences of party struggle appear

  The national debt of the United States is the total amount of outstanding borrowing accumulated by successive federal governments.

In 2013, the total U.S. debt and GDP were about 16.7 trillion U.S. dollars, a ratio of over 100%. By 2022, U.S. debt will already be equivalent to 124% of GDP.

  To limit the debt "snowball" development, the U.S. Congress set a maximum limit for the federal government to borrow.

Once the upper limit is hit, it means that the U.S. Treasury Department's borrowing authority has been exhausted, and the government faces the risk of "technical default" and shutdown.

Data map: U.S. dollars.

  "From independence to the present, in the process of achieving its own economic prosperity, it can be said that the United States has followed a path of development through debt," Li Haidong said.

The U.S. government has always had debt, whether from its own nationals or from foreign governments, entities or citizens.

  He pointed out that, in fact, for a long time, the US debt problem did not mean a crisis.

The "pocket bag" of the U.S. Congress is in the hands of the House of Representatives. In the past, the increase of the debt ceiling was automatically matched with the government budget.

  But since the mid-1990s after the end of the Cold War, after the Republicans dominated the House of Representatives, they have forcibly isolated the government budget and the debt ceiling from each other.

As partisanship intensified, the debt ceiling issue gradually evolved into a real crisis.

Data map: On September 22, 2021 local time, Republican senators in the U.S. Congress held a press conference, stating that they would block the passage of the debt ceiling bill by the House of Representatives.

Photo by China News Agency reporter Chen Mengtong

  From the perspective of the underlying reasons, Li Haidong analyzed that at the beginning, the "Father of the Nation" of the United States envisioned the separation of powers and checks and balances to allow the country to operate effectively in the midst of compromise between the parties. , Narrow group interests as the starting point, all major issues are dealt with in a political environment.

  This means that issues such as the U.S. debt ceiling have gradually become the focus of Congress kidnapping the White House and the White House countering Congress.

  Zhang Zhixin also analyzed that, judging from the practice of the U.S. government since the beginning of the new century, the Democratic and Republican parties in Congress competed to expand government spending in order to please voters, and the debt ceiling has become useless.

Therefore, the peak of the debt ceiling is essentially a crisis artificially created by the two parties out of partisanship.

There are only four months left to dismantle the "giant bomb"

  As U.S. debt broke through the "ceiling", U.S. Treasury Secretary Yellen couldn't sit still.

She sent consecutive letters to congressional leaders, especially House Speaker McCarthy, who had just been elected for half a month, informing the other party that the Ministry of Finance had to take special measures from January 19 to June 5 local time to avoid debt default.

Data map: U.S. Treasury Secretary Yellen.

  Yellen's special measures, including:

  Suspension of additional investment in public service retirement and disability funds

  Suspension of new investments in the Postal Service Retirees Health Benefit Fund

  · Redeem part of the investment

  Although the U.S. Department of the Treasury has taken special measures more than a dozen times in the past 40 years, the "Buddha's feet" can only be hugged temporarily.

It is estimated by many parties that Yellen will last until the beginning of June 2023 at most, and the treasury funds may dry up.

Therefore, the US Congress still needs to solve the problem before the "deadline".

Data map: U.S. Capitol.

  Generally speaking, there are two ways to dismantle the "bomb fuse" of debt default:

  1. Raising the debt ceiling.

In other words, raise the "ceiling" of default a little higher.

  This is nothing new in American history.

Since the end of World War II, the United States has revised its debt ceiling nearly a hundred times, most of which were raised.

But this will cause the United States to eat more than enough food to become more and more serious.

  Second, suspend the debt ceiling.

During this period, the US Congress will allow the Treasury Department to issue national debt without restriction.

  Since 2013, Congress has suspended the debt ceiling seven times.

However, the excessive issuance of national debt by the United States and the frantic printing of money will only further consume the confidence of borrowing countries in repaying their debts.

Such as the US debt default, or the "butterfly effect"

  Li Haidong noticed that recently, Goldman Sachs and other Wall Street investment banks generally predict that the global economy will probably decline in 2023, and the situation in the United States itself is not very optimistic. In addition, since the financial crisis in 2008, the debt of the United States has climbed from about 10 trillion US dollars to more than 100 billion US dollars. $31 trillion, the debt ceiling is growing too fast, and in this case the problem is even worse.

  He believes that the US dollar and the United States act as the "fixing needle" in the global economy. Although the probability is very low, once the US debt defaults, the "fixing needle" will shake violently, causing the global economy to fluctuate or even retreat.

Data map: American people walk in front of the New York Stock Exchange.

Photo by China News Agency reporter Liao Pan

  Zhang Zhixin said that if the U.S. fails to pass the bill to raise the debt ceiling, leading to the shutdown of some government agencies, it will affect the operation of the U.S. economy and society.

  On the whole, if the United States really defaults on its debt, it may trigger a "butterfly effect".

  For example, the people at the bottom who live on government subsidies are in trouble, exacerbating the economic chaos of the United States itself, causing investors to worry about selling US treasury bonds, which will damage the credibility of the United States and reduce the status of the US dollar as a global reserve currency or "safe haven asset". Ultimately, it will exacerbate the turmoil in the global financial market and drag down the recovery of the world economy.

House Speaker McCarthy 'set on fire'

  At present, the two parties in the United States control the Senate and the House of Representatives respectively, and their requirements are quite different. In order to force the other party to submit, neither side is willing to compromise easily.

  Zhang Zhixin noticed that there is something new about the debt ceiling issue this time compared with the past, that is, the extreme conservatives in the Republican Party represented by the "Freedom Caucus" have shown great constraints on the views of mainstream conservatives.

  Therefore, the great challenge facing the new speaker of the House of Representatives, McCarthy, is whether he can persuade ultra-conservatives to accept raising the debt ceiling, rather than reaching a consensus with the Democratic Party.

In fact, the Democratic Party has already kicked the "ball" to McCarthy.

Data map: Speaker of the US House of Representatives McCarthy.

Photo by China News Agency reporter Sha Hanting

  "McCarthy is like a goat roasted on a fire," Li Haidong also pointed out that on the issue of the debt ceiling, if McCarthy succumbs to the extreme right wing of the Republican Party, he will be alienated by other factions of the Republican Party in the House of Representatives and the Democratic Party; If the extreme right demands, many initiatives in the House of Representatives will not pass.

  According to reports, McCarthy has made a series of major concessions to the far right of the Republican Party in order to win votes and was successfully elected as the speaker of the House of Representatives.

  Li Haidong said that the extreme right wing of the Republican Party has "hijacked" the Republican Party for its "fundamentalist" demands, forcing the Republican Party to compromise on major issues.

  But the damage of debt default is too great, and it is difficult for the United States to really take risks on this issue. Therefore, he believes that the U.S. debt ceiling will eventually be raised, mainly depending on how the two parties use this issue to weaken each other’s strength during the game.