And US observers who spoke to “Sky News Arabia” say that funds with the US government could run out within weeks, and it could cause global financial chaos, unless authorities manage to organize new borrowing transactions.
New York economic analyst Deacon Hyatt refutes 5 main points that explain the nature of the current crisis in the United States, how the US government can deal with it, and what will result from the failure of current efforts to raise the debt ceiling.
Observers describe the crisis as approaching a “game of chicken” between Democrats and Republicans, especially since things are going so far without a deal, and there appear to be signs of political exploitation of the crisis in the run-up to the presidential elections scheduled for 2024.
And the game of chicken is an American game, where two drivers race towards the abyss, and the winner is the one who stops at a point closer to the edge of the abyss. And the worst result of this match is that the two opponents continue to play without one of them giving up.
What is the debt limit?
Also known as the debt limit, this is a law that limits the total amount of money a government can borrow to pay its bills.
This includes paying federal employees, the military, Social Security, and Medicare, as well as interest on the national debt and tax refunds.
The U.S. Congress typically votes to raise or suspend the cap so it can borrow more.
Why is the government forced to raise the debt ceiling?
The United States has already reached the maximum debt limit of $31.4 trillion. The government is currently facing a bankruptcy scenario unless it can pass on new debts. Democratic leaders want to raise the cap, but Republicans want to agree to spending cuts and other conditions first.
What happens if the government is unable to borrow again?
Experts say the US government won’t be able to pay employee salaries and tax debts if it doesn’t raise the debt ceiling by June 1.
In addition, services offered to citizens will be reduced and the government could be forced to close parks and public places.
Charities that rely on government funding may also face closure.
The crisis will gradually affect the global economic system and could cause chaos in banking and trade transactions in which the United States shares with other countries.
7 million jobs at risk
Moody’s Analytics predicts that in the event of a prolonged stalemate, which could result from a government default, stock prices will fall by about a fifth and the economy will contract by more than 4%, dragging more than seven million job losses.
What are the possible risks?
The crisis, if the government fails to contain it before next June, threatens to cause extreme turbulence in markets inside and outside the United States.
Due to the crisis, the United States will lose its affiliate rating, and the recession and inflation rates will increase.
The continuation of the crisis and the government’s delay in paying its obligations, setting the stage for a partisan confrontation that could turn into an economic or constitutional crisis, or both.
Among the possibilities, President Joe Biden could decide to defy Congress and order the Treasury Department to ignore the debt limit, taking a potentially high-stakes case to the Supreme Court.
In the worst-case scenario, the government will stop paying its many obligations on time, dealing a blow to an economy already sliding into recession.
What are the latest developments?
US President Joe Biden said on Sunday he planned to meet with congressional leaders on Tuesday to discuss a plan to raise the debt ceiling and avoid a default that could lead to a major crisis.
In remarks to reporters in Delaware, Biden said he remained optimistic that a deal could be reached.
Biden was scheduled to meet with members of the House of Representatives on Friday, but the meeting was postponed.
Biden said he received an update on the progress of discussions between administration officials and their congressional counterparts.
“I’m always optimistic because I’m optimistic,” he added, expressing his belief that there is a will on both sides to reach an agreement.
“I think we can do it,” he said.
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