Indebtedness is a good tradition in Washington: since the early 2000s alone, US liabilities have more than quadrupled, and since the Second World War the debt ceiling that the state has imposed on itself has been raised 102 times. According to US Treasury Secretary Janet Yellen, such a step will soon be taken again: According to her, the United States will run out of money on June 1st. But the opposition Republicans are now questioning the urgency.
“I don’t want to say that Yellen is a liar. But she’s neither an economist nor a professor, she’s a politician. So I think June 1 is a political upper limit,” says conservative Senator John Kennedy. He is not alone in his concerns about the imminent end of US solvency. Other Republicans simply claim that the cap will not be reached until July or August. The problem: The escalating dispute over the exact timing could have repercussions far beyond the United States.
Economic experts also fear serious consequences for the international financial system and the global economy. Most recently, the President of the European Central Bank, Christine Lagarde, spoke of a “big, big catastrophe” in this context. The US economist at Commerzbank, Bernd Weidensteiner, said: “A US default would have unforeseeable consequences and would shake the markets.”
Read here what exactly happens when a country actually goes bankrupt.
In order to raise the debt limit, the two US houses of parliament would have to agree on a compromise. However, this is proving difficult due to the majorities: the conservative Republicans in the House of Representatives have a wafer-thin lead over the ruling Democrats, while in the Senate it is the other way around. Opposition leader Kevin McCarthy recently presented a 320-page draft law, on the fulfillment of which he tied his approval of raising the debt ceiling. Around 1.5 trillion US dollars are needed.
McCarthy is demanding, among other things, a hard freeze on spending and a budget cut of around $130 billion. Among other things, savings should be made on Biden’s “Inflation Reduction Act”, an investment package for climate protection and renewable energies. The Republicans also hate the idea of waiving the repayment of student loans for academics, some of which are high. US President Joe Biden rejects such cuts and insists that the debt ceiling must be raised unconditionally, as previous governments are responsible for the debt.
So time will be the deciding factor in the political tug of war. The less the parties are left with, the greater the pressure on the Republicans to deviate from their far-reaching demands for reasons of state. So far, it has been the declared goal of the Conservatives that their faction leader McCarthy negotiate directly with the President about the debt limit. Because he needs a success and the more powerful the opponent, the greater his fame. But Joe Biden has little or no interest in that. So far, he is only willing to talk to the US Congress about government spending in general.
In fact, the United States has been without money since January. Since then, they have only been able to service their debts with accounting tricks. So time is of the essence. The solution, some experts suggest, is for Biden to invoke the Constitution to force the debt ceiling to be raised. The 14th Amendment states that “the validity of the national debt” in the USA “must not be called into question”. In other words, servicing liabilities is the country’s top priority.
Sources: DPA, AFP, Axios, “Financial Times”, “Wiener Zeitung”
