Insight: US debt time bomb is ticking, Biden forced to face reality

Lorenzo Bagnato

17 Maggio 2023 - 16:01

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US debt is way too high and way too dangerous to be ignored. If nothing is done by June, it would mean default.

Insight: US debt time bomb is ticking, Biden forced to face reality

US president Joe Biden faces an impending crisis concerning America’s biggest liability: its $31.4 trillion debt. For the umpteenth time since 2013 the US must raise its debt ceiling, otherwise declaring default. American debt matures in June, and a decision needs to be made.

Debt is incurred by nations to increase investments and public welfare within the nation itself. In the United States, however, once a certain level of debt is reached (debt ceiling), the nation is legally forced to stop borrowing.

The solution so far has been very simple: raise the debt ceiling. Indeed, every time the US is approaching the debt ceiling, a similar debate about a possible default takes place. And every time, after weeks of acrimonious discussion, the ceiling is eventually raised.

However, the more the United States incur in debt, the more the dollar is devalued. The US dollar is the global reserve currency or, in other words, the world’s most powerful currency.

The dollar is part of the reason why the United States is the only remaining global superpower, and its devaluation is clearly a bad sign for American hegemony.

Since 2020, the US debt has been higher than the nation’s GDP. The Covid pandemic and the subsequent relief packages forced Washington to incur in even more debt, devaluing the dollar even further.

On the other hand, default is not really an option either.

The current debt ceiling discussion

An American default on debt would spread economic shockwaves all across the world, plunging the planet in a long and inevitable recession. The United States would stop being the world’s most important economy, its GDP would collapse and inflation would skyrocket.

On the other hand, as we said, the debt cannot keep going up indefinitely. At some point, it needs to be addressed.

Republican House speaker Kevin McCarthy proposed a bill that would prevent increased public spending. They would concede on raising the ceiling once again, but this time under specific conditions.

The bill would essentially stop America’s infinite borrowing, starting to slowly repay the debt.

But passing this bill would essentially destroy president Biden’s whole political power. Biden’s massive $1.2 trillion infrastructure package would be delayed at best and canceled altogether at worst.

But the Republicans have a point: debt is a time bomb, and it will explode sooner or later.

President Biden was forced to cancel his trip to Asia, where he was supposed to discuss joint security with QUAD (US, Australia, India, Japan). Instead, he will be meeting with McCarthy, finally starting negotiations on the debt ceiling.

The ceiling will most likely be raised once again. But every string breaks if it’s pulled too much.

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