Source: Xinhuanet
Analysts point out that the U.S. federal government has frequently hit the debt ceiling due to unbridled spending, and the bipartisan bickering in Congress has brought the federal government to the brink of debt default many times, causing heavy damage to the U.S. and global economies.
The debt ceiling crisis reappears
U.S. Treasury Secretary Yellen said in a letter to House Speaker McCarthy and other congressional leaders on the 19th that because the federal government's outstanding debt will reach the ceiling that day, the Treasury Department will take special measures to initiate a "suspended bond issuance period" from January 19 to June 5, suspending the infusion of new funds into some welfare funds. This move will help the Treasury Department be able to continue making other federal payments if the overall debt level cannot be increased and avoid a debt default by the federal government.
The debt ceiling is the maximum amount of borrowing set by the U.S. Congress for the federal government to meet its incurred payment obligations. Touching this "red line" means that the U.S. Treasury Department's borrowing authority has been exhausted. Since 1985, the U.S. Treasury Department has taken special measures more than ten times to avoid debt default, and the "drama" between the two parties in Congress over the debt ceiling issue has been frequently staged when the federal government is on the verge of default.
This is the Capitol Building taken in Washington, USA. (Photo by Xinhua News Agency reporter Liu Jie)
In order to win the support of hardliners in his party, McCarthy agreed to amend the legislative rules of the House of Representatives when running for the position of Speaker of the House of Representatives, combining raising the public debt ceiling with cutting fiscal expenditures. This will make it more difficult for Democrats to seek to raise the debt ceiling in the new Congress.
In a recent interview with US media, McCarthy compared the current US government to a spendthrift child who needs to lower his credit card limit. He said that "the debt ceiling cannot keep increasing." If the Democrats do not change their unrestrained spending behavior, Republicans will use their majority status in the House of Representatives to obstruct the increase in the debt ceiling, thus "bankrupting the country." He called on the Biden administration to negotiate with congressional Republicans on spending cuts.
But Biden strongly rejected the proposal. He recently stated that he would not negotiate on the conditions for raising the debt ceiling and that Congress should resolve the debt ceiling issue without any conditions attached.
Analysts said that unlike in the past, when Congress was able to narrowly avoid government debt defaults at the last moment, this "fight of law" is more likely to end in a catastrophic outcome that will impact the U.S. economy .
Rachel Snyderman, senior deputy director of the Bipartisan Policy Research Center, a US think tank, said that if the United States defaults on its debt, it is "purely a political decision" because the government is fully capable of avoiding default through economic means.
The "Yin eats Mao Liang" situation is unsustainable
The U.S. Congress has continuously raised the public debt ceiling in recent decades, bringing it to a record level of US$31.4 trillion. This is the result of massive tax cuts and unbridled spending. If the U.S. federal government continues its policy of "stretching money and spending money", it will be difficult to maintain a stable fiscal situation.
This is the White House taken in Washington, the capital of the United States. (Photo by Xinhua News Agency reporter Liu Jie)
Data from the Congressional Research Service, a US congressional think tank, shows that since the end of World War II, the US Congress has adjusted the debt ceiling hundreds of times. From the 1980s to 2011, the debt ceiling soared from less than $1 trillion to $16.39 trillion. Since 2013, Congress has temporarily lifted the debt ceiling seven times and raised it twice in 2021. U.S. Government Accountability Office data shows that from 1997 to 2022, Congress has raised the debt ceiling 22 times.
The U.S. Congressional Budget Office predicted in May last year that in order to avoid debt default, the debt ceiling would need to be raised to US$36.9 trillion by the end of fiscal year 2027, and further raised to US$45.4 trillion by the end of fiscal year 2032.
U.S. government data shows that the size of the debt ceiling as a percentage of the U.S. gross domestic product (GDP) reached 118% in 1946, dropped sharply thereafter, to 32% in 1981, and then climbed sharply, soaring to 125% at the end of fiscal year 2022 (ending September 30, 2022).
Snyderman believes that the two parties in Congress must seriously work together to find solutions, not only to solve the most urgent debt ceiling issue at the moment, but also to discuss countermeasures for the broader fiscal challenges facing the U.S. government.
The damage has affected the world
Analysts pointed out that the U.S. government's frequent debt ceiling crises not only affect the normal lives of its people, economic growth prospects and fiscal health, but may also affect the stability of the global economy and financial markets.
For the American people, the debt ceiling crisis will pose a threat to their social welfare. Once the special measures are exhausted and the federal government defaults, the Treasury Department will be unable to reimburse people participating in federal social security and medical insurance programs, and the impact on people's lives will be immeasurable. Data from the Ministry of Finance show that among the total federal government expenditures in fiscal year 2022, social security expenditures are the largest, exceeding US$1.2 trillion, and medical insurance expenditures also exceed US$750 billion.
At the same time, the debt ceiling crisis occurred at a time when expectations of a U.S. economic recession were increasing, casting a shadow over the U.S. economic prospects.
A worker repairs a sidewalk in New York, USA. (Xinhua News Agency, photo by Zhu Ziyu)
Snyderman pointed out that the fight over the debt ceiling in Congress may be the "biggest threat" facing the U.S. economy this year. She said a stalemate in debt ceiling negotiations would leave Congress unable to enact stimulus measures to prevent the economy from falling into a deeper recession. An economic slowdown could reduce federal tax revenue, further shortening the window for raising the debt ceiling.
In addition, if the U.S. federal government fails to repay its debts in a timely manner and defaults on its debts, the global economy and financial markets will face disaster. Gopinath Gopinath, First Vice President of the International Monetary Fund, recently stated that the U.S. government's debt ceiling crisis will "inevitably" increase the risk of the government's credit rating being downgraded, which will bring additional risks to the United States and other economies around the world.
Experts believe that the US dollar’s world reserve currency status stems from global confidence in the US federal government’s ability to repay its debts. Once the U.S. government debt default occurs, it will inevitably trigger a crisis of confidence in the U.S. dollar and U.S. Treasury bonds in the global market, causing the global financial system to be in trouble.
