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| US Treasury Secretary Janet Yellen Image Credit: Google |
Political impasse between Biden and McCarthy persists after fresh talks. The Debt
Ceiling has become the buzzword in the affairs of today’s American political
economy particularly with the world keeping a keen watch on the matter.
Debt Ceiling is the maximum amount of money that the United States can borrow cumulatively
by issuing bonds. The debt ceiling was created under the Second Liberty Bond
Act of 1917. It is also known as debt limit or statutory debt limit.
Some points to be
noted:
- According to the Act, if the level of national debt is increase by US Government against the ceiling amount, then the Treasury Department must resort to other extraordinary measures to pay governmental obligations and expenditures or to increasing the limit of ceiling.
- The debt ceiling has increased or suspended multiple times by the American Government to evade the worst-case scenario like default.
- There have been numerous shutdowns over the debt ceiling and some of which have led to the government shutdowns.
- Shutdowns are caused by the conflict between American Government and Congress, with the debt ceiling used as a leverage to push budgetary agendas.
Contemporary Scenario:
The 31.4
trillion debt ceiling has created a political impasse between the Government
and Congress in which republican has regained majority after the recent
congressional elections.
Republicans
seeks to limit government spending by slashing social welfare programmes, but
this claim is denied by many democrats in the government.
The Biden Administration
has previously called for a “Clean and Clear” increase in the Debt Ceiling
without any conditions attached.
The US
President has also called on wealthy Americans and big corporations to pay their
fair share of taxes to increase state revenue to address national debt crisis.
High Chances of
US default by early June 2023:
The Treasury Secretary,
Janet Yellen in a meeting at White House, issued a third letter to Congress in
which she urged lagislators to act “as soon as possible”.
Yellen
emphasised that “it is highly likely” that United States could begin to
default by June 1.
She also warned
that political impasse has already resulted in dire consequences as the US
already seen a substantial increase in the Treasury’s borrow cost for
securities maturing in early June.
“If the US Congress fails to increase the
debt ceiling it would cost severe hardships for American families, harm its
global leading position, and would also raise questions at its ability to defend
national security interests.” She added further.
According to Economists,
if the US Government defaults on its loans, there are possibilities that:
- It could trigger a countrywide recession with global impacts.
- It will drop US credit ratings.
- It will cause higher interest rates and greater strain on economy at large.
- The payments of Veterans, Social Security recipients, businesses reliant on governmental funds will be stopped or delayed.
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| Republican House Speaker Kevin McCarthy briefing media Image Credit: Google |
Negotiations to
break Political Impasse:
United States
President Joe Biden and Republican House Speaker Kevin McCarthy held meeting to
discuss the debt ceiling issue that has threatened a default of American
Economy.
The members
from Biden’s and McCarthy’s camps sat to hammer out details.
Like its
previous move, before Biden went to attend G-7 Summit; the tour that he
shortened due to debt ceiling issue, McCarthy once again rejected the claim of “Clean”
debt ceiling increase without attaching any conditions by saying that he will
only increase the limit when the Government would curtail its spendings.
He also dismissed
the possibility of curtailing defence spendings as well as authorising a short-term
extension on debt ceiling.
“I don’t think
short-term extension benefits anybody”. Because “Short term extension means
that we have failed in what we were supposed to do”. McCarthy told the reporter
as quoted Al-Jazeera.
(Courtesy:
Al-Jazeera, Investopedia)
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