The US government has four months left before it runs out of money – and the country will have to declare a technical default. But negotiations between the Congress and the White House to raise the debt ceiling have reached an impasse – and no compromise has been seen so far
Source: Business Insider
The White House has described the position of Republicans who refuse to raise the debt ceiling as “holding the country hostage. Republicans have pressured Biden to make cuts in government spending – and are using the debt ceiling issue as leverage in budget battles.
If the U.S. fails to raise the debt ceiling by June, the country could face default. That would almost certainly crash stock markets and plunge the world into a new financial crisis. America will face a collapsing economy and soaring unemployment.
At the same time, neither Republicans nor Democrats are willing to cut key areas of spending, such as social security and defense. Republicans are mainly focused on cutting various small things like international aid to other countries. But this is a mere tenth of a billion dollars, while the treasury deficit is in excess of one trillion.
The situation is aggravated by the steep rise in the cost of servicing the US national debt. Short-term US Treasury bond rates are already above 5%. This year, up to a third of the US budget – under $1.5 trillion – could be used just to pay interest on the debt.
So sooner or later, the US Federal Reserve will have to lower rates and start the printing press again. This is the only way to mitigate the debt crisis threatening the world, which can affect not only the U.S., but many other indebted economies as well.
Malek Dudakov
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