Biden’s countdown to preventing the US from suspending payments

It’s already been three months since US Treasury I started “Extraordinary Measures” to avoid suspension of payments. but Janet Yellenresponsible for the country’s public finances, has already warned that she cannot work miracles and If Congress does not agree to increase the spending cap, the country will enter bankruptcy. their inability to meet their financial obligations. when? at most in the summer, though the exact date is still unknown. The worst forecasts are for the month of June.

a Suspension of payments It just won’t be Serious consequences for the US economybut it will be A systemic infection that would affect the whole world. now, The debt ceiling represents the most significant short- and medium-term downside risk to the credit rating of the United States.As pointed out by Dennis Shen, sovereign debt analyst at Scope Ratings. Avoid even at the last minute a shortening A technician can have serious consequences for your creditworthiness.

In order to increase the debt ceiling, the President of the United States said, Joe BidenAnd It needs congressional approval, but negotiations are expected to be difficultEspecially since in the last elections the Democratic Party lost control of the House of Representatives, and now it is in the hands of the Republicans, who threatened to block the measure if the White House did not cut public spending and stop the increase in the deficit.

The US uncertainty ceiling is currently $31.4 trillion and was reached on January 19th. On that day, the Treasury Department began to reconcile the country’s finances, for example, postponing investments in federal pensions.

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In March, Biden introduced his administration’s 2024 budget proposal, which includes A Historical record of public spending with an increase of 10%.And Adding a $1.9 trillion deficit to the public accounts. According to the White House, the red numbers are temporary, because their plan is also passing Increase taxes on corporations and the nation’s wealthiest taxpayers (family income of more than $400,000 a year), she managed to reduce the deficit by $3 trillion over the next decade.

but These accounts do not add up to RepublicansWho accuses the president of demonstrating the future of the country. The power games are so balanced that almost impossible negotiations are to be expected, that they could not even agree on a date for their start yet…

Biden had been refusing to come to the negotiating table until Republicans introduced the full budget bill, which came in the form of a legislative proposal last week, when Conservatives used their majority in the House of Representatives to pass an increase in the debt ceiling in exchange for a big cut in social spending from the Biden administration. This measure will die in the Democratic-controlled Senate. While each side theatrically portrays its position, one thing is certain: the pages of the calendar turn and no one sits down to negotiate.

When that time comes, it won’t be easy either because of internal opposition among Republicans and the Speaker’s lack of political capital, Kevin McCarthyin their ranks.

emergency plan

in this context, There will be little more than a month left for the Democrats and Republicans to agree on the debt ceilingAnd Before Janet Yellen confirmed in June the exact day she would have to suspend payments. Analysts are confident that a deal will be reached at the last second, although a temporary default is not ruled out either.

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In reality, This isn’t the first time this has happened.It actually happened in 1979. And now everything reminds of those who lived in his days Barack Obama in 2011when Biden served as vice president. Then there was a default two days before Congress raised the debt ceiling.. For this reason, they believe from Scope Ratings that “Biden will likely have a contingency strategy on the table should the worst-case scenario occur.” “In 2011,” Dennis Shinn recalls, “a short-term default reduction contingency plan was put in place, reflecting potential late payments to agencies, contractors, Social Security recipients, and Medicare providers.”

What are the consequences of the technical bankruptcy of the US economy?

“There is no other possible alternative.” It’s the phrase most frequently made by Federal Reserve Chairman, Jerome Powell, when asked if Congress should approve an increase in the country’s debt ceiling as soon as possible. because? Because the consequences will be devastating, not only for the US economy, but for the rest of the world, given that the dollar is the reference currency, not only as a haven asset in the reserves of other countries, but also when talking about bonds and debt issuance.

A supposed suspension of payments to the world’s largest economy, which accounts for 25% of global GDP, would trigger a financial tsunami. First, the United States will enter a recession after a decline in consumption, credit, and investment. Automatically, the dollar will fall, affecting the rest of the surrounding economies, causing a new international financial crisis.

It will also have geopolitical consequences. If the United States is not interested in an overvalued dollar, let alone a devalued dollar, leaving the yuan free. China has accelerated its international investment and made itself the main creditor of other emerging countries around it, thus removing it from Washington’s sphere of influence.

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Aileen Morales

"Beer nerd. Food fanatic. Alcohol scholar. Tv practitioner. Writer. Troublemaker. Falls down a lot."

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