Each editor: Duan Lian, Yi Qijiang
According to CCTV News on January 21, U.S. Treasury Secretary Janet Yellen warned on January 20 that any failure to repay debts is a breach of contract. If the federal government cannot repay its debts, it will trigger a U.S. economic recession and have widespread impacts .
U.S. Treasury Secretary Yellen Picture source: Visual China
Yellen warning: U.S. government debt default may cause global financial crisis
Yellen said in an interview with CNN that day that if the U.S. Congress does not raise the debt ceiling in time and the federal government cannot repay its debt, "it will undoubtedly lead to a U.S. economic recession." Many people will lose their jobs and borrowing costs will also rise. Yellen said that a debt default would trigger a downgrade of the U.S. sovereign debt rating, weaken the dollar's status as a global reserve currency, and could "create a global financial crisis."
Yellen said that day that if the federal government fails to fulfill its payment obligations, it "will constitute an actual default" whether for its debt holders or social security beneficiaries. The Treasury system was established "to pay all debts as they become due on time, rather than to prioritize one form of debt over another." She emphasized that the length of time that the special measures taken by the Ministry of Finance to avoid a government debt default can be sustained is difficult to determine, and may run out of as early as June.
Yellen said in a letter to Congress on the 19th that since the federal government has hit the legal debt ceiling of US$31.4 trillion (approximately RMB 213 trillion), the Treasury Department will take special measures from now on to avoid a debt default by the federal government. Currently, the two parties in Congress are confronting each other over raising the debt ceiling.
According to the official WeChat account of CCTV Chinese International, White House Press Secretary Karina Jean-Pierre confirmed on the 20th local time that US President Biden will hold a meeting with House Speaker Kevin McCarthy to discuss raising the debt ceiling. Republicans, who hold the majority in the House of Representatives, have previously stated that they will not agree to raise the debt ceiling unless Biden agrees to significantly reduce spending levels.
Image source: Visual China-VCG111371436204
Karina Jean-Pierre said that Biden said that the debt ceiling issue should not be used as a political bargaining chip and is not a negotiable issue. Raising the debt ceiling is the obligation of the United States and its leadership to avoid economic chaos.
Wall Street giant: The end may come in late summer or early autumn Experts: The most government "shutdown"
The debt ceiling is the maximum borrowing limit set by the U.S. Congress for the federal government, including social security and medical insurance, military salaries, etc. According to the U.S. Government Accountability Office (GAO) statistics, there has never been a federal government debt default in the history of the United States . Between 1997 and 2022, the federal debt ceiling was raised 22 times.
The current debt ceiling in the United States is approximately US$31.4 trillion (approximately RMB 213 trillion) set in December 2021.. Reaching the debt ceiling means that the U.S. Treasury Department's borrowing authority has been exhausted, the government faces " technical default ", and the federal government will also face the risk of shutdown.
This is the Treasury Building taken in Washington , the capital of the United States, on January 20. Photo by Xinhua News Agency reporter Liu Jie
html On January 13, Yellen sent a letter to McCarthy urging members of Congress to "take timely action to raise or temporarily cancel the debt ceiling." Since 1985, the U.S. Treasury Department has taken special measures more than ten times to avoid debt defaults.However, the fierce battle between the two parties in the US Congress over raising the debt ceiling has aroused people's concerns. "The New York Times" stated that this year's party chaos will be the most serious in at least ten years. After Republicans took control of the House of Representatives, they passed new legislative rules that made it more difficult to raise the debt ceiling and emphasized that any increase in the limit must be accompanied by spending cuts. Senate Republicans have also called for raising the debt ceiling to be tied to "structural spending reform."
The Democratic Party has no intention of giving in. The White House urges Congress to resolve the debt ceiling issue unconditionally. U.S. President Biden said he opposes any attempt to link spending cuts to raising the debt ceiling , which would increase the possibility of a long-term stalemate between the two sides.
The Biden administration will prioritize negotiating a new bill to raise the debt ceiling after the mid-April tax deadline, according to a senior White House official.
US financial institutions generally hold a relatively pessimistic attitude towards the prospect of a US default. Goldman Sachs believes that the risk of the government not being able to pay the "bill" this time is probably the highest since 2011 for . Bank of America has also judged that the possibility of U.S. debt default this time is higher than in the past few years, and the deadline may come at the end of this summer or early autumn.
Goldman Sachs has warned that U.S. political and fiscal conditions in 2023 will be similar to two highly damaging debt ceiling increases in 1995 and 2011. The deadlock in the U.S. Congress has led to increased market volatility, with U.S. Treasury bonds maturing around the debt limit deadline experiencing violent selling.
A previous report issued by Moody's warned that a default by the U.S. government would result in the loss of approximately 6 million jobs and $15 trillion in household wealth. In addition, a decline in U.S. credit ratings may cause U.S. real estate and auto interest rates to surge .
However, Professor Pan Rui of Center for American Studies at Fudan University and Senior Researcher Ding Yifan of Taihe Think Tank pointed out that debt default means a decline in US dollar credit, US debt will be sold off in large quantities, and there may be no takers. At the same time, the capital market will be violently turbulent, triggering a US sovereign credit crisis. Because the cost of default is too high, the United States will not truly default, that is, it will be unable to repay its debts. At most, there will be a government "shutdown" .
Editor | Duan Lian Yi Qijiang
Proofreading | Lu Xiangyong
Daily Economic News Comprehensive from CCTV News, CCTV Chinese International, Yijing.com (reporter: Zhang Lingxiao), public information, etc.
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