For weeks, American politics has been under the spell of an imminent bankruptcy. Because the debts of the United States are sky-high, a default is imminent. In sheer desperation, policymakers are trying to raise the debt ceiling, but analysts still expect the US to default in June, meaning that the country will default on paying off its debts.
If the US is characterized as a defaulter, this will have major consequences for the international financial system, expects BlackRock Vice President Philipp Hildebrand. “This is not something you want to mess with,” he warns. Hildebrand, also a former head of the Swiss central bank, hopes that the problem will be addressed in time. He argues that if the US defaults on creditors, it is an “anchor” that can threaten the financial system. “It can’t happen.”
Republicans want to scrap Biden’s hobbyhorses
US President Joe Biden therefore wants to raise the debt ceiling. The Republicans, however, do not simply want to participate in this. They therefore demand changes in budgets. Speaker of the House of Representatives and Republican leader Kevin McCarthy presented a plan that proposed a $130 billion cut. On the other hand, the debt ceiling will be raised by one and a half trillion dollars.
The Republicans especially want to cut back on plans that Biden wants to profile himself on. For example, it concerns climate plans, health care and the Inflation Reduction Act that conservative politicians want to cut. The Republicans also want to scrap the plan to cancel a large part of American student debt. The White House, however, criticizes the plans, saying that the Republicans in the House are “holding the American economy hostage.”
Big consequences
However, US Treasury Secretary Janet Yellen wants “drastic measures” to be taken before the beginning of June to prevent bankruptcy. The debt ceiling currently stands at $31.4 trillion. However, the US already tapped that amount in January, but a financial trick enabled it to build in a buffer of USD 800 billion. However, the Americans cannot repeat that trick again. Sometime this summer, the US will therefore still touch the ceiling. As a result, the United States can no longer pay interest on outstanding debts, for example. Also, money can no longer be spent on government officials, money for health care and social services.
