President Joe Biden warned yesterday’s G-7 summit in Japan that the hardline Republicans who have maintained what he called a “extreme position” on the ongoing debt limit talks “won’t prevent a default by doing something outrageous.”
The biggest economy could default on its debt obligations as early as June 1, 2023, which could result from the executive’s failure to win support from the Republican-controlled House of Representatives to raise the debt ceiling. Biden’s warning highlights the impending crisis the global financial system faces.
With a current national debt of $31.5 trillion, the United States has already surpassed its critical borrowing cap of $31.4 trillion. As a result, the Treasury Department had to start using extraordinary measures to keep the government from going into default and to pressure Capitol Hill to avoid it.
The Treasury has issued a warning that if the standoff persists, the nation, which controls 25% of the global economy, could declare bankruptcy as early as June 1, 2023.
Janet Yellen, the Treasury Secretary, adding that if Congress refused to accept a compromise, the United States could not be able to pay its obligations to keep the government running.
She issued another warning yesterday during Meet the Press, a debate watched by The News Chronicles, that if Congress failed to reach an agreement before the United States ran out of money, bills would not be paid. This comes as the global financial market considers the possibility of a failed settlement.
“I indicated in my last letter to Congress that we expect to be unable to pay all of our bills in early June and possibly as soon as June 1. And I will continue to update Congress, but I certainly haven’t changed my assessment,” Yellen stated that there was “a hard deadline” in place.
Biden, who had originally intended to stop in Australia and Papua New Guinea after the G-7 summit in Hiroshima, Japan, ended the trip midway and headed “back home to deal” to continue the debt limit talks—a brinkmanship that began under President Barack Obama—in recognition of the serious consequences of failing to obtain parliamentary approval prior to the deadline.
The Republican-White House battle will be a key test for Biden’s reelection campaign. However, the sobering realization that the biggest economy might break its promise to repay its debt could send shockwaves through the whole global economy.
Since last week, the ongoing negotiations have had a significant impact on the direction of the financial market as traders have begun to price in various scenarios as the deadline.
Analysts have cautioned that a U.S. default may have disastrous effects on the investment market and that the crisis could lead to unrest in the global financial system.
By the end of last week, equities, cryptocurrencies, and other assets had already dramatically reacted to the impasse. Last week, the U.S. bond was selling at a significant discount.
Analysts predict that if the government ever defaults, the value of U.S.-issued bonds might plummet, potentially leading to an increase in interest rates.
The 14th Amendment’s clause that states that “the validity of the public debt of the United States… shall not be questioned” might be used by Biden as justification for his boycott of Congress and continued borrowing.
However, several analysts claimed that there is little evidence to support what the provision demands of the Congress and the Presidency, indicating that there may still be some ambiguities in the paragraph.
Additionally, several financial experts have issued warnings that boycotting Congress in order to maintain government would not be sufficient to stop the economic unrest.
In order to discuss a possible bipartisan stance, Biden and McCarthy, the Speaker, were on a prearranged conversation. The specifics of the phone call between the two politicians remained a secret as of the time of publication.
McCarthy and his associates were previously charged by the President of adopting a “extreme” and undesirable stance. The Republicans had suggested a spending reduction as a condition for a settlement, but the negotiators had held to their extreme demand.
Negotiators for McCarthy announced over the weekend that they would not pick up with the administration until Biden returned to Washington.
Risks of a banking catastrophe and rising interest rates are increased by the debt ceiling duel. Each time, the worry of a worsening of the circumstances and a potential spread of the risks to other continents, especially Africa, grows.
