International Intelligence Bureau: The US debt crisis exposes the shortcomings of the government's governance, when will the vicious circle end?

China News Network, June 6 (Chen Caixia, He Luman) On May 1, local time, the US House of Representatives voted to pass the newly agreed debt ceiling bill. Next, the bill needs to pass the Democratic-controlled Senate before it can be sent to President Joe Biden to sign into law.

Biden said in a statement on the same day that the House of Representatives had "taken a key step" to prevent the first U.S. debt default, saying, "I have always been clear that a bipartisan compromise and bipartisan support is the only way out." The agreement passed that test. ”

Infographic: US dollars.

Why does the US government repeatedly fall into a vicious circle of hitting the "debt ceiling"? What impact will the "U.S. debt bomb" have on the United States and the world? Has the potential crisis of this debt default been resolved?

Regarding the US debt issue, Dai Wensheng, a professor at the School of Finance of Chinese Minmin University and a special researcher at the International Monetary Institute, pointed out in an exclusive interview with Chinanews.com that even if the agreement can be passed, it will only push the contradiction forward. This crisis has exposed not only the shortcomings of the US ruling class, but also the governance flaws of the entire electoral system and interest groups.

The 99-page compromise agreement was adopted

Only for "political face"?

The Democratic and Republican parties in the United States have been fighting over the federal government's debt ceiling for months, and with only a few days left to touch the debt ceiling, on the evening of May 5, Biden and House Speaker McCarthy announced a principled agreement and strongly urged the Senate and House of Representatives to pass the agreement.

Infographic: US President Joe Biden.

The 99-page compromise includes a number of elements, the main ones being:

Strengthen federal public assistance program application requirements to recover approximately $280 billion in unspent COVID response costs

Cap defense spending at $2024 billion for fiscal year 8860

Cap defense spending at $2025 billion in fiscal year 8950

The FY 2024 veterans health care budget is $1210 billion

Other non-defense discretionary program funding is $6370 billion

Dai pointed out that the 14th Amendment to the US Constitution stipulates that the credibility of US public debt cannot be questioned, so a default on US government debt is unconstitutional, and failure to agree on a ceiling increase will cause default on previously issued debt.

Dai Wensheng further explained that the "US debt ceiling" is actually the "credit card limit" held by the US Treasury, and in the case of not exceeding the upper limit, the US Treasury can decide the "frequency and amount of card swiping" according to the government's policy objectives, and decide to control the rhythm of bond issuance. The U.S. debt ceiling is very important to the functioning of the government, and once it is reached and new debt is issued, civil servants' salaries, social benefits, and interest payments on existing debt become problematic.

In Dai Wensheng's view, even if the agreement is passed, it will only push the contradiction forward, and the Republican Party cannot fully agree with the Democratic Party's proposition, and will definitely impose strong restraints on the debt ceiling issue.

"As long as the US economy cannot be substantially recovered, the state of living beyond its means will continue, and the US government debt will further rise." Dai Wensheng said.

Infographic: McCarthy.

The US "Capitol Hill" also pointed out that Biden and McCarthy did not raise the debt ceiling in monetary amounts, but agreed to extend the debt ceiling for two years - which means that the two sides did not solve the underlying problem, but only postponed it until after the 2024 presidential election.

Romina Busia, director of budget and welfare policy at the Cato Institute, put it bluntly, "It became a political face-saving agreement, but it didn't have much substance in changing the trajectory of the U.S. debt." ”

"Technical default" is comparable to "nuclear bomb explosion"

The vicious circle can't stop

In fact, this is not the first time the U.S. government has faced a debt crisis.

Since 1917, when the debt ceiling system was first set, the US Congress has raised the government debt ceiling hundreds of times, from $135.2021 billion at the time to $31.4 trillion in 2000, a surge of more than <>,<> times.

The debt ceiling crisis has directly led to several US government shutdowns.

• From December 1995, 12 to January 15, 1996, the Clinton administration was suspended for 1 days.

• From October 2013 to 10, 1, the Obama administration was shut down for 17 days.

• From December 2018, 12 to January 22, 2019, the Trump administration was shut down for 1 days.

Dai Wensheng pointed out that "the two parties play a game of seeing who blinks first" and will eventually agree on raising the debt ceiling, so the farce of the US debt crisis will be repeated repeatedly. The constant "game" between the two sides may lead to a temporary shutdown of the government. Between the shutdown and the settlement, the debt will only be "technical default", that is, the payment of the debt due and interest will be delayed.

He believes that the current economic situation in the United States is grim, the banking industry is full of crises, a large outflow of funds, a number of small and medium-sized banks have closed one after another, and the performance of the real economy is hopeless to revitalize, and "even taxes cannot be collected." "In this case, another 'technical default' poses a threat to the United States and the global economy comparable to a 'nuclear bomb explosion'."

Data map: White House. Photo by China News Agency reporter Chen Mengtong

"Debt defaults hurt American society and the American people the most, the government shutdown, civil servants strike, ordinary people's lives will be greatly affected, and the receipt of pensions will not be so smooth." Dai Wensheng said.

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%.

In addition, CNN pointed out that a default on the US government's debt may cause the country to lose its AAA sovereign credit rating, with "catastrophic consequences" for the US economy and even the world economy.

"Yin eats food"

The crisis exposed flaws in U.S. governance

Some analysts pointed out that the essence of the US debt crisis is "eating less food", which is a problem accumulated by long-term mismanagement of successive governments.

"This crisis has exposed not only the flaws of the US ruling elite, but also the governance flaws of the entire electoral system and interest groups." Dai Wensheng said.

He further explained that under the US voting system, the ruling party cannot cut social benefits such as medicine and pensions, and in the face of public health events similar to the new crown epidemic, the government directly sends a lot of money to buy voters, and the military-industrial group cannot be offended, no matter what the situation, the military budget must not be less. Under such a system, the US government will inevitably repeatedly touch the vicious circle of the "debt ceiling".

Dai Wensheng said that in the era of global economic growth, the United States is the only one and harvests from the world through complex institutional design, but global economic growth has its limits, and with global development and technological progress, there will inevitably be challengers in the United States. If the United States does not change the core mechanism of its political system and social functioning, the debt problem cannot be properly resolved. (End)