The unique absurdity of US debt defaults

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In Washington, the shutdown is reaching its peak. In just a few weeks, the United States could be on the verge of defaulting on its debt, which would threaten the country and the global economy. President Biden they conflict and House Republicans, who are using the looming early June deadline to raise the national interest rate as a way to raise government spending.

Biden cut short a trip to the Asia-Pacific region, skipping trips to Papua New Guinea and Australia, to continue talks with House Speaker Kevin McCarthy (R-Calif.). As the crisis continues, the Treasury Department is looking at ways that federal agencies can pay the bills that come later in an effort to save money. “Without further borrowing, new tax cuts or new austerity measures, the government is expected to miss a payroll for the first time in modern history in early June,” he said. your friends report.

The United States is one of the few countries that enforces universal credit, in its current state. It was first established in 1939. Although this is not the first time that a political party has existed he tried to fight the problem of infidelity, Democrats accuse their Republican colleagues of using it to undermine Biden’s agenda and cut spending by enforcing laws they couldn’t enforce. When they were in power not long ago, Republicans had little to worry about raising the ceiling and blowing the old borrowed hats.

“The issue here is a point: If you accept the idea that you can, in fact, be saved by fraud and debt, it will be done repeatedly. Not to be crazy, but in fact I am talking to criminals who have caught people,” Dean Baker, an economist at the Center for Economic Policy and Research , left leaning tank, he said to my friends. “More and more people in progressive circles are worried about it.”

From start to finish, Biden’s visit to Japan affected US politics

Government officials in some areas are very concerned about the potential problems caused by the problem. “I cannot believe that they would allow such a great tragedy to happen because of the United States defaulting on its debt,” European Central Bank President Christine Lagarde said. he told CBS News last month. “This is impossible. I don’t believe this will happen. “

Mr Biden warned that the conflict was undermining the role of the United States in the world. Given the current state of US financial markets, that would tank when the government debt falls.

“The US Treasury market is Washington’s golden goose, and the market shows that the golden eggs it lays are still very important,” said Maximilian Hess, head of London-based political risk firm Enmetena Advisory, which advises clients including insurers and other financial institutions. . , he said to my friends. “Yet the U.S. has a law on the loan that clearly states that the golden goose must be removed and shot unless it agrees to lay a few eggs for a while.”

In 2011, House Republicans used their influence to pressure President Barack Obama to approve the spending of the funds that had just expired. According to my friends, the crisis caused the credit management agency to reduce the credibility of the country to pay its debts and cost the taxpayers US $ 1 billion.

As the debt fight rages, Democrats bring up an old idea: Resolve it

Consignment loans are available in a variety of forms few other countries. But most countries around the world do not force people to spend large amounts of money in public, and they do not cross legal boundaries to move around debt. Some countries maintain their public debt to gross domestic product, although many have the legal ability to breach this limit. The countries that are part of the European Union have committed to keep their debt within 60 percent of GDP, but the rules are soft and there are EU measures to give relief to countries that are under pressure.

“Credit limits are automated tools to help you manage your finances better,” wrote Mrugank Bhusari and the Geoeconomics Center of the Atlantic Council. “But in practice they act as targets of control or tools of political negotiation, causing economic chaos. No wonder so much of the world has chosen to be limitless.”

Denmark is the only developed democracy other than the United States that has a debt-to-equity ratio. But it exists as a formality, set at a much higher rate than current Danish debt and thus less likely to be the subject of serious political debate.

“The debt limit doesn’t make a single difference in the case of Denmark,” Torben Iversen, an economist at Harvard University, told me. The Danish parliamentary system also ensures that the entire coalition government can implement economic policy, while the fragmentation of the American government creates conflict and allows the wishes of the “opponents” to take place.

“In the U.S. system, you can have a lot of people who want to raise the ceiling,” said Iversen, referring to the electoral mandate that the Democrats got to win the presidency with a small majority in the Senate, “but then you have a minority. That can interfere with creativity.” your driving force.

Polarization in Washington and the strong approach of the Republicans, Iversen added, “makes it possible for people to use tools to weaken the masses and this cannot happen in Denmark or in the parliament.” He added that the existence of the debt “doesn’t make good economic or financial sense” and has led Washington lawmakers to engage in “irresponsible” politics.

Across the Atlantic, there has been a lot of political instability and gridlock, but not over something as immovable as the debt ceiling. “In terms of political instability, it’s probably very similar to the discussions that have been going on in Belgium or the Netherlands or the way the UK government is working,” said Stan Veuger, a European economist and senior partner. at the American Enterprise Institute, he told me.

“To the extent that the current crisis has received attention from the financial press, it seems to be incomprehensible,” he said. “But the outbreak is less alarming than here in the US, and it’s more similar to what we’ve talked about than one might expect. It’s not often portrayed as an illegal takeover, especially right now.”

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