Exhausted all means of maneuvering Will the "US debt bomb" explode this time?

The Congressional Budget Office recently warned that the United States would face the risk of defaulting on its debt in early June if the debt ceiling remained unchanged. U.S. Treasury Secretary Yellen also sent two letters to the U.S. Congress a few days ago, saying that the U.S. Treasury will run out of cash as soon as June 6, urging Congress and the White House to take action to raise the debt ceiling and avoid debt default.

Discussions about the risk of debt default have become common in the United States in recent years. Why is the US repeatedly on the verge of defaulting on its debt? What kind of shadow will the "US debt bomb" bring to the United States and the world?

"Exhausted all means of maneuvering"

The debt ceiling is the maximum amount of borrowing set by the US Congress for the US federal government, and reaching the debt ceiling means that the US Treasury can no longer pay government bills and pay debt. In January, the US federal government debt reached $1 trillion, approaching the $31.2021 trillion debt ceiling approved by Congress in September 9.

The Treasury had a cash balance of $5.16 billion as of May 946, below $1000 billion, the Treasury said. By early June, the U.S. government may run out of money. Earlier, the U.S. Treasury also said that as of May 6, it had "exhausted all means" except for about $5 billion in authorized non-conventional measures.

At present, the US government and the US Congress need to reach a solution on the debt problem and decide whether to raise the debt ceiling to increase debt issuance and maintain government spending. If the two sides fail to agree, the United States will default on its debt. The US Congressional Budget Office warned that the country will not be able to maintain the operation of the government, provide civil servants' salaries and interest on debts, etc.

However, progress in these negotiations has been slow. On May 5, US President Joe Biden held a meeting with House Speaker of the House of Representatives McKinsey and other congressional leaders on the debt ceiling, but nothing came of it.

The United States has repeatedly come to the brink of defaulting on its debts. According to statistics, since the first debt limit system was set in 1917, the US Congress has raised the government debt ceiling hundreds of times. According to the U.S. Chamber of Commerce, the United States has also temporarily raised the debt ceiling six times since 1993 to buy time for debt ceiling negotiations. Reuters said that in 6, the US Congress reached a last-minute deal to narrowly avoid a disaster, but the US credit rating suffered its first downgrade. In 2011, history repeated itself, when the U.S. government was forced to leave 2013,80 civil servants unemployed for two weeks.

"Both parties accuse each other of making jokes about the U.S. economy."

Many analysts pointed out that the political polarization in the United States has intensified, resulting in the risk of debt default in the United States.

Reuters reported that for some time, the Republican-led House of Representatives has called for cuts in government spending, covering health care, science, education, climate, energy and other fields, and the Biden administration's current tax breaks, climate change, Medicaid and other policies need to increase investment in these areas, and the two sides have continued to friction. As the debt ballooned, Democrats demanded a higher debt ceiling without any spending cuts, while Republicans demanded a deep cut to Democratic priorities first. Just last month, the Republican-dominated House of Representatives passed a bill that would tie up the debt ceiling with deep cuts in federal spending, which was strongly opposed by Democrats. "The fierce struggle between the Democratic and Republican parties has led to the possibility of a debt default in the United States that will eventually shake the world economy." The report said.

"The two parties are playing the 'coward game' on the debt ceiling, and both sides are about to collide, but both want the other to take a step back. Both parties accuse each other of making jokes about the U.S. economy. The US "Capitol Hill" website reported.

In addition to bipartisan rivalry, intra-Republican fighting has added uncertainty to the debt ceiling discussion. The BBC reported that hardliners among Republican lawmakers insisted they would not raise the federal debt ceiling unless Democrats agreed to conditions attached to spending cuts, adding to the standoff.

Li Haidong, professor of the Institute of International Relations of the Foreign Affairs University, told this reporter that the US debt problem is not only a continuous economic problem, but also a serious political problem. The debt ceiling issue involves a persistent and sharp confrontation and collision between the Democratic and Republican parties in the United States, as well as between Congress and the White House. At present, it is not only difficult for the two parties to resolve the debt ceiling issue in a sustained and benign way, but also to disrupt the political environment through repeated confrontations. Under the circumstances of polarization of party strife, it is difficult for the United States to effectively resolve the dispute over the debt ceiling according to the logic of economic operation, and there is a possibility that debt default will develop in a direction that all parties in the United States and the international community do not want to see.

Experts pointed out that the risk of debt default in the United States is deeply due to the economic development model of the United States. "For a long time, the United States has relied on the issuance of national bonds to maintain the operation of the federal government and its own economy, and at the same time, through the US debt, it has maintained the dominance of the US dollar in the world. Under this economic development model, the United States can pass on the consequences of its own economic and political problems to other countries through US debt, and in the long run, the United States has formed highly irresponsible policy tendencies and habits. At present, the total debt of the United States remains high, and the total amount of the US debt has exceeded 120% of the total annual economic output of the United States, and it is showing a growing trend. However, the United States also wants to continue to 'transfuse' the United States by continuously raising the debt ceiling. Li Haidong said.

Li Qingsi, a professor at the School of International Relations of Chinese Minmin University, told this reporter that the US debt is approaching the ceiling, and there is also a huge military expenditure that continues to grow. In order to maintain its hegemonic status and maintain its ability to intervene in international affairs, the United States has spent huge sums on global military operations, and its military spending has increased year after year. For a long time, the United States has spent more on military than the next nine countries combined. The US government's fiscal 9 budget allocated $2024 billion to the Pentagon, a record high. The United States has high debt, but instead of investing funds in domestic construction and promoting a virtuous cycle of the real economy such as manufacturing, it has spent funds on military operations, making the already heavy debt burden of the United States worse.

Operation Extreme will have a shock to the US economy

The White House issued a statement a few days ago saying that in order to ensure that Congress takes timely action to avoid debt default, Biden will end the G5 leaders' summit trip ahead of schedule on May 21 and continue to meet with congressional leaders. Many analysts have pointed out that based on the history of the United States' handling of the debt ceiling, the two parties are often able to reach a compromise just before the debt defaults. But Operation Limit will have a hit on the U.S. economy, according to Reuters, U.S. Treasury Secretary Yellen said in a letter to the U.S. Congress: "We know from past debt ceiling impasses that delaying a last-minute suspension or increase of the debt ceiling could cause serious damage to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact U.S. credit ratings." ”

Some analysts also pointed out that if the deadlock between the two parties continues, the "US debt bomb" eventually breaks out, and the US economy may decline. According to the analysis of Moody's in the United States, if the debt default lasts for 6 weeks, the United States may lose more than 700 million jobs, the unemployment rate will soar to more than 8%, and the US economy will fall by more than 4%.

"The risk of U.S. debt default has a huge impact on the U.S. and even the global economy." Li Haidong said, "Once the United States defaults on its debt, it will not only mean that the credibility of the US government is missing, the US dollar hegemony system established by the United States is substantially damaged, and the US dollar assets held by the United States and other countries around the world have depreciated sharply, but also cause fierce turbulence in the global financial system, and even trigger a global financial disaster, which may bring about a deep adjustment of the global economic order." ”

Experts said that it remains to be seen whether the United States will raise the debt ceiling and avoid debt default, but for many years, the United States has "offset old debts with new debts", continuing to overdraft US political credit and weakening the credibility of US Treasury bonds.

Li Qingsi said that the United States has "harvested" global wealth by continuously increasing the US debt ceiling, which has long dissatisfied many countries around the world, including US allies. Especially after the Russian-Ukrainian conflict, the United States has abused financial sanctions and vigorously implemented quantitative easing policies, which has made other countries more aware of the potential risks of the US dollar and US bonds. Some countries have tried to avoid the risk of US debt default by selling US debt, trade settlement, foreign exchange reserves bypassing the US dollar, etc. This also shows that the credibility of the US dollar as the world's most important reserve and settlement currency is declining, and the "game" of the United States to transfer domestic risks through the issuance of US bonds is becoming more and more inoperable.

Jim Rogers, a well-known American investor, also said in an interview with the Russian Satellite News Agency a few days ago that the United States will one day lose its status as the world's largest economy due to growing national debt. He also warned that whoever is elected as the next president will have problems until 2025.

"Due to the long-standing shortcomings, the United States may be more and more in a difficult situation: on the one hand, the international credibility of the dollar is declining, and the United States' practice of exporting its own contradictions to the world by continuously raising the debt ceiling is becoming less and less recognized; On the other hand, the US debt ceiling increase has also been slow to boost the domestic real economy, and it is difficult to solve the deep-seated problems of the US economy; In addition, the United States has provoked a big power game in the world, intensified camp confrontation, and made some countries that have the ability to buy U.S. debt and mitigate debt risks for them increasingly cautious about buying U.S. bonds, and the way for the United States to mitigate its own economic risks with the help of external forces is gradually being blocked by itself. Li Qingsi said.

Gao Qiao Lin Zihan (Source: People's Daily Overseas Edition)