Fact: The US debt hit the ceiling already in January
Formally, the US hit the debt ceiling – of 31,400 billion dollars – already in January. But the Ministry of Finance has since been able to pay for itself by shuffling around existing resources. However, Finance Minister Janet Yellen has warned that at the beginning of June it will no longer be possible to handle the payments in this way.
If this is true, the U.S. could now be three weeks away from defaulting on payments—which would be a historic event.
The consequences would be dramatic and force drastic political measures. Most expect the US to make every effort to continue meeting its interest payments and repayments – to avoid a catastrophe in global financial markets.
The austerity that would be necessary without new loans would therefore hit retirees and other beneficiaries within the US social security system very hard and also mean suspended payments to suppliers and ongoing operations – including defense. This scenario would create a deep recession in the world’s largest economy, according to SEB’s economists.
Sources: Bloomberg, SEB, The Wall Street Journal
Joe Biden is in Hiroshima, Japan for the G7 meeting. With him in his luggage, he has concerns about the US debt ceiling and consequences such as a new financial crisis if a solution is not reached. During Friday’s 90-minute political meeting, no agreement was reached, and Republican Patrick McHenry, among others, was pessimistic afterward:
— No, was the answer to whether he thinks a solution should be found in time.
The United States Congress must decide to raise the debt ceiling in order to be able to borrow more money to pay off amortization and amortization of loans. Earlier this week, even from the Republican side, it was more optimistic.
On the ground in Hiroshima, President Joe Biden now emphasizes that he will not accept “extreme” demands from the Republican side, but is still optimistic – despite the adversity of the last day.
— I still think we can avoid suspending payments and get something properly done, says Biden.
Asked if Biden was nervous about the outcome, the response was:
– No not at all. It is negotiations and going according to plan.
The President of the United States leaves Japan on Sunday to return to Washington, the trip to Asia will thus be shortened due to the debt ceiling problem, originally he was also supposed to visit Australia.