Only days remain for the world’s largest economy to avoid a global crisis. But in the debt dispute, the fronts have hardened – and so not only the political future of the US president is at stake.
In the US debt dispute, there is still no agreement between President Joe Biden and the Republicans. “I felt like we had a productive meeting,” Republican negotiator Kevin McCarthy said Monday evening (local time) after a top-level meeting with Biden at the White House. However, a solution has not yet been found. Biden also spoke of a “productive meeting” with McCarthy to avert “a catastrophe for our economy.”
Behind the dispute over the state’s bankruptcy, a bitter political power struggle rages. The U.S. government is at risk of default from early June, according to Treasury Department forecasts. If it really came to that, it could lead to a global financial crisis. A US bankruptcy would damage confidence in the creditworthiness of the world’s largest economy.
payment arrears are imminent
Both sides have repeatedly emphasized that they want to avoid this catastrophic scenario. US Treasury Secretary Janet Yellen, meanwhile, reiterated her warning ahead of the White House summit that US money could run out as early as June 1.
A default is imminent, because in the United States parliament decides how much the state can borrow. The limit has been increased dozens of times since its introduction in 1917, otherwise the money would have run out. Last-minute negotiations to raise the debt ceiling are not uncommon, but this time they are particularly bitter. Because the dispute is a partisan confrontation in which both sides have a lot to lose.
Republicans push for social cuts
The Republicans in Congress want to urge Biden to save in social areas, for example, in exchange for an increase in the debt limit. For example, McCarthy demands that people who receive certain social benefits get a job in return. Biden’s Democrats don’t want that. Instead, they want to close “tax loopholes” – specifically, taxing the rich more heavily. Republicans oppose this.
The situation is even more complicated because the Republicans only have a very narrow majority in the House of Representatives. There are also radical MPs in the parliamentary party who show no interest in a realistic compromise. At the beginning of the year, McCarthy was only elected Speaker of the House of Representatives by his group after a historic electoral chaos. This has greatly weakened his position.
An unprecedented default by the US government is in principle not in the interests of both Democrats and Republicans. However, observers emphasize that there are more and more Republicans who would accept a state bankruptcy to weaken Biden and thus reduce his chances of re-election. Ultimately, the US president would be held responsible for such a fiasco. The Democrat announced a few weeks ago that he wants to run again in the 2024 presidential election.
McCarthy once again put pressure on the US president on Twitter: “The Democrats have 9 days to meet the deadline, but since President Biden has ignored this debt crisis for over 100 days, a default would be Biden’s default.”
Millions of people are at risk of financial loss
If the US government were unable to pay most bills, millions of people across the country could lose their jobs. Supplements from certain social programs or pension benefits could probably no longer be paid. In 2011, a Republican majority in Congress delayed raising the debt ceiling. At that time, the US credit rating was downgraded for the only time in history.
Source: Krone
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
