Four Keys to Understanding What’s Happening with the US Debt Ceiling

The United States is only a few days away from falling into suspension of payments an unprecedented situation that threatens to derail the post-pandemic recovery of the world’s largest economy and could plunge international markets into chaos.

According to the Treasury Department, Washington may remain without funds pay off its debts as early as June 1 unless Congress can agree to raise the debt ceiling, which was reached in January and sets a legal limit on how much the government can borrow.

This is not the first time the country has looked into the abyss of default, although Democrats and Republicans seem to be far from agreeing. In these veins, we look at where the negotiations are and what might happen if the US suspends payments.

1. “Significant Gap”

Key Republican negotiators, Congressmen Garrett Graves and Patrick McHenry, said on Tuesday after meeting with their government counterparts that there was still a “significant gap” between the two groups’ positions.

Photo: Reuters

In particular, the Conservatives, led by House Speaker Kevin McCarthy, are trying to get Democrat Joe Biden’s administration to agree to cut spending and bring it up to fiscal 2022 levels.

The White House has offered to freeze them at the 2023 level, but for now it refuses to cut government spending, opting instead to increase the levy, which Republicans oppose.

Following McCarthy and Biden’s meeting this Monday, the Republican slammed the Progressives’ stance, arguing that “the US has a spending problem, not a collection problem.”

2. What happens in case of default

If Congress fails to reach an agreement and the country ends up defaulting on its public debt, those hardest hit socially, according to Ostrum AM’s director of market strategy, Axel Botte, will families, benefit you social security and Armed forces.

Photo: Pixabay

On the other hand, at the investment level, institutions They own Treasury securities as well as shares, the manager said in a report.

The group, like Detsche Bank, said it was unlikely the country would eventually default, but warned that a downgrade, as happened in 2011 during the previous debt ceiling crisis, could debt securities put pressure on stock markets in the short term and stimulate safe-haven assets such as gold and the Japanese yen.”

3. In other words, has this situation happened before?

Yes, although it is normal for Congress to approve an unconditional increase in the debt limit, as the White House is now demanding. However, in 2011, when Barack Obama became president, the Republicans refused to raise the national debt ceiling until the government agreed to limit public spending for several years.

The deal was then struck two days before the country defaulted on its debt, prompting Standard and Poor’s (S&P Global) to downgrade the country’s credit rating from AAA to AA+.

According to the US Government Accountability Office (GAO), the standoff has resulted in a $1.3 billion increase in financial spending this year.

Photo: Reuters

4. Are there alternatives to an agreement in Congress?

Some analysts and politicians have tried to offer congressional alternatives to the deal, such as the possibility that the Treasury Department will come up with “trillion dollar coin“deposit it into the Federal Reserve and then withdraw the money to pay the country’s bills.

Another option that is gaining more and more supporters is Biden’s use of a constitutional amendment known as Amendment 14- raise the debt ceiling without congressional approval, as requested by some in his own party.

For now, however, the White House is betting on trying to negotiate with the Republicans, while also trying to separate budget talks from an agreement to raise the national debt ceiling, which the government says should be carried out without conditions – as has happened more than 70 times since the 1970s.

(EFE)

Source: Aristegui Noticias

follow:
\