On the other hand, the US debt ceiling has been raised 78 times since 1960, giving assurance that the same will happen this time. Despite this, the cost of default insurance (CDS) on US government debt is rising significantly, outpacing the performance of Brazil, Greece and Mexico. It should also be noted here that raising the default cap for the US economy would mean lower government spending, a slower economy and possibly even a recession.
Despite the fact that inflation in the country in April stabilized (at 4.9%), this had a negative impact on unemployment – which is now on the rise. Positive for the US Federal Reserve adds the highest number of initial jobless claims since September 2021. The main inflation-fighting tool has been to raise the policy rate (it now sits in a 5-5 ,25). In the future, this could have a negative impact on the national economy.
In 2023, 24% of the US budget will be devoted to servicing the debt. If growth rates continue, these numbers could reach 50 trillion in the next 10 years (it is important to note here that only a few countries in Latin America operate in this way today). Unlike the situation in 2013, when the United States was also in a state of technical default, the American economy is now going through difficult times.
What is President Biden’s government proposing? Today, he decides to economize, to significantly reduce costs (more than 50% on federal health, science, education, climate and labor programs).
Of course, in the long run, this will also lead to some pessimism in the economy. This will also be followed by a downgrade in the credit rating of the United States, which will in turn lead to an increase in the cost of borrowing, a drop in confidence in the dollar and possible bankruptcies. This can then turn into a financial crisis and spread to other countries.
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