Discussions between President Biden and the opposition parties have just begun over the issue of the U.S. government's debt ceiling, the so-called debt ceiling. If no agreement is reached, there is a risk of a default next month, and the fate of the debt is attracting attention.
In the United States, President Biden, who is calling for an increase in the upper limit on the government's debt, and Speaker McCarthy of the opposition Republican Party, who says that raising the limit will require a major cut in fiscal spending, are continuing to talk.
The talks between the two sides, which followed on the 9th of this month, began at the White House shortly after 16 a.m. on the 17th, Japan time on the 4th.
House Speaker McCarthy said the day before that "there is a big gap between the two sides," suggesting that many issues remain in the negotiations, and if the talks are not concluded, they could default next month.
Depending on the progress of the talks, attention was focused on whether President Biden would visit the Japan for the G19 Hiroshima Summit to be held on the 7th, but White House Coordinator for Strategy and Public Relations Kirby announced at a press conference on the 16th that the president would leave Washington on the 17th as scheduled.
However, House Speaker McCarthy was asked by reporters before the talks on the 16th, "Should the president postpone his visit to Japan?" and he said, "I would not leave the country for eight days."
What are the consequences of defaulting?
Regarding the impact of failure to raise the debt ceiling and default = default, the CEA = Council of Economic Advisers, which is responsible for analyzing the current state of the US economy and formulating policies, has published the results of an analysis conducted with external researchers.
It states that the United States has never defaulted in history, but that if it does, the economy will retreat rapidly and the magnitude of the loss will depend on the duration.
Specifically, we estimate that if the default is prolonged for a long time, 7.9 million jobs will be lost in the period from July to September, the unemployment rate will rise by 830 percentage points, and GDP = gross domestic product will fall by 5.6% on an annualized basis in real terms compared to the previous period.
If the default is short-lived, there will be 1,50 job losses, an increase in unemployment of 0.3 percentage points, and a decline in GDP of 0.6 percentage points on an annualized basis in real terms.
Regarding this debt ceiling issue, Treasury Secretary Janet Yellen said at a press conference held on the 7th on the sidelines of the G7 = Finance Ministers and Central Bank Governors Meeting of seven major countries, "If we default on our debts, it will lead to catastrophe both economically and financially. We called on Congress to take prompt action, including raising the upper limit.
As for the possible timing of default, the Congressional Budget Office of the United States revealed on the 11th the latest forecast that there is a significant risk of defaulting at some point in the first two weeks of next month.
On the other hand, if the government can cover government funds until the 12th of next month through special measures by the Ministry of Finance, new tax revenues that will come in every quarter are expected, so fiscal management is expected to continue until at least the end of July.
Democrats and Republicans Frequently Conflict Over Debt Ceiling
In the United States, Democrats and Republicans have different views on fiscal discipline, which has often led to political conflicts over the debt ceiling.
In 1995-96, under the Clinton administration, the government, Democrats, and opposition Republicans clashed over spending bills and raising the debt ceiling, and some government agencies were shut down for 21 days.
In 2011, negotiations between the Obama administration and the ruling and opposition parties eventually passed a law to raise the debt ceiling, avoiding the worst case scenario of default.
However, Standard & Poor's, a major credit rating agency, downgraded the rating of U.S. government bonds and caused major turmoil in global financial markets, saying that the budget deficit reduction plan agreed upon by the government and Congress was insufficient.
In 2013, it again led to a partial government shutdown.
President Obama asked the opposition Republican Party to pass the budget bill and raise the government debt ceiling, but the Republicans insisted that the budget bill include a delay in the health care reform promoted by the Obama administration, and the confrontation became protracted.
The current U.S. debt ceiling is more than $31.3800 trillion, more than four times the $20.7 trillion it was 3800 years ago.
Since U.S. government bonds are considered reliable and safe assets, held by investors and foreign governments around the world, and are important asset managers, the future of talks between President Biden and the opposition Republican Party will continue to attract attention.