{"id":44214,"date":"2023-04-28T10:30:00","date_gmt":"2023-04-28T08:30:00","guid":{"rendered":"https:\/\/www.11onze.cat\/?p=44214"},"modified":"2023-11-29T08:50:18","modified_gmt":"2023-11-29T07:50:18","slug":"what-would-happen-if-us-defaults-debt","status":"publish","type":"post","link":"https:\/\/www.11onze.cat\/en\/magazine\/what-would-happen-if-us-defaults-debt\/","title":{"rendered":"What would happen if the US defaults on its debt?"},"content":{"rendered":"
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Once again, the usual political tug-of-war in the US Congress triggered by the cyclical need to raise the debt ceiling is accompanied by media hysteria about a possible default. But is there a real possibility that the country could default, and what would be the consequences for the global economy?<\/b><\/h3>\n

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Unlike other countries, where government spending is capped, in the United States, Congress sets a ceiling on the amount of federal debt – currently set at $31.381 trillion – that the government can acquire to finance its spending and obligations. The debt ceiling <\/span>does not limit the government’s ability to incur spending but rather restricts the issuance of Treasury bonds,<\/b> i.e. new debt that it uses to meet its financial obligations. The theory is that by limiting the amount of debt that can be accumulated, spending will be restricted.<\/span><\/p>\n

The debt ceiling was first established in 1917 to finance the United States’ entry into the First World War. Since then, it <\/span>has been raised 102 times by the legislature<\/b>. This limit has become especially relevant recently because of the country’s chronically high budget deficit. Policies focused on military spending and social programmes, lower tax revenues due to tax cuts, and the impact of the pandemic are some of the factors that have contributed to the public deficit.<\/span><\/p>\n

In practice, however, limiting the debt ceiling <\/span>has proved wholly insufficient in controlling the debt<\/b>. The government continues to spend money at a deficit and the debt continues to grow, and worse, it is used as <\/span>an excuse to fuel political blackmail between the two dominant parties<\/b>, who often jeopardise the economic health of the country for their own self-interests. As European Central Bank president Christine Lagarde recently declared, “I understand politics, but there comes a time when the higher interests of the nation have to prevail”.<\/span><\/p>\n

The importance of the debt ceiling was highlighted in 2011 when Congress came close to failing to raise the limit, which would have led to a US government default. Former President Barack Obama was forced to <\/span>cut spending on social programmes to reach a political deal to raise the debt ceiling and avoid default.<\/b> A political tug-of-war that led to the only credit rating downgrade in the country’s history.<\/span><\/p>\n

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