US national debt is becoming worryingly high, threatening the global dominance of the dollar. Republicans proposed a bill to reduce public spending.
Republican House speaker Kevin McCarthy announced on Tuesday his party’s intention to pass a bill on extending the debt ceiling. In the United States, he reminded, public debt is currently 31 trillion dollars, 20% higher than the nation’s GDP.
An unsustainable situation, McCarthy said, that could lead this administration to be the first to default on debt in American history. So far, the debt ceiling was raised uncontrollably everytime new spending was required. McCarthy and the Republican party intend to put a stop to that.
Raising the debt ceiling is a routine issue in American politics. Whenever the debt limit is reached, the opposition party threatens to default unless conditions are met.
Of course, neither the Republicans nor the Democrats want the US to default, however raising the ceiling needs to be a bipartisan decision. This has led to several “hostage” situations as explained.
Nevertheless, the debt ceiling problem cannot be ignored forever. At some point, the debt will become far too high to be sustainable, and an American default would lead to global chaos.
Therefore, Republican Kevin McCarthy proposed a solution that would raise the debt ceiling while simultaneously forcing the government to reduce public spending. The bill will likely be officially laid out and proposed by June, when the debt limit will be reached once again, or by July/September.
The bill has low chances of success, as it would have to pass through both chambers of Congress. While the House is lightly controlled by the Republicans, the Senate is firmly under Democratic control.
And Democrats oppose the bill as it would essentially kill president Joe Biden’s agenda, all based upon raising public spending to recover from Covid.
The American public debt is, however, a ticking bomb ready to explode.
The fall of the dollar?
No other nation in the world could withstand such high levels of public debt. The United States, however, can thanks to the global power of the dollar. Until the dollar will be the world’s reserve currency, the United States is safe.
But increasingly high levels of debt are also severely devaluing the dollar in favor of other, foreign currencies. According to Visual Capitalist, the dollar lost 98% of its purchasing power since 1971.
China is taking notes, as it tries to replace the Yuan in many foreign trades including that of Saudi oil. A dollar crisis would be a bounty for China, and a complete disaster for the United States.
This is what politicians mean when they talk about US debt as a ticking bomb. And it is not a coincidence that China is the second largest holder of US debt.
