pressure rises again
USA is threatened with default on June 5th
May 27, 2023 at 4:41 p.m
An agreement is emerging in the US debt dispute. But the danger to the global economy has not yet been averted. Finance Minister Yellen now predicts a specific date. Even before that, there are devastating consequences.
In the bitter negotiations for a breakthrough in the US debt dispute, the Treasury Department is keeping the pressure up with a new default forecast. Secretary Janet Yellen said, based on new data, the United States would run out of money by June 5 unless Congress raises or suspends the debt ceiling by then.
According to experts, an unprecedented default by the US government could result in a global financial and economic crisis. Yellen had previously warned of a possible government default in early June – possibly as early as June 1st. She now calls the new date with greater certainty.
US President Joe Biden said on Friday evening that an agreement was within reach: “Things are looking good.” For weeks, Biden’s Democrats and Republicans have been arguing in tough rounds of negotiations about raising the debt ceiling. The new date gives the two negotiating parties a short breathing space. It could also just prolong the argument.
Serious consequences even with a last-minute agreement
Yellen made it clear that the situation for the world’s largest economy was serious and that the treasury was almost empty. The debt ceiling is currently $31.4 trillion. This cap has already been reached for months, and the USA can only stay afloat with financial policy tricks – known in technical jargon as “extraordinary measures”. Yellen said that if the US waited until the last minute to raise the cap, the consequences could already be serious.
As early as 2011, a Republican majority in the US Parliament had delayed raising the debt ceiling for so long that the US credit rating was downgraded for the only time in history. The rating agency Standard & Poor’s dropped the top rating “AAA” at the time and has since rated the USA only “AA+” – one rating lower. The rating agency Fitch also threatened this week with a possible downgrading of the top credit rating. It is believed that the risk has increased that the debt ceiling will not be raised in time and that the US government will no longer meet its payment obligations, it said.
“Stability of the global financial system at stake”
In the US, Parliament decides the maximum amount of money the state can borrow. This repeatedly leads to arguments about raising the upper limit if the governing party does not have a majority in both chambers of Congress. The Republicans again emphasized on Friday that there was progress in the talks. But they also made it clear that there were always new points of contention that delayed an agreement.
The Republicans, with their majority in the US House of Representatives, want to use the negotiations to cut spending on certain social programs. They are also calling for recipients of certain benefits to be required to work. The Democrats are opposed to this, arguing that this would hit the weakest in society even harder. The head of the International Monetary Fund, Kristalina Georgiewa, also sharply criticized the United States on Friday. The stability of the global financial system is at stake, she warned. It is “frustrating” that an agreement on raising the debt ceiling is being waited until the last minute.