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.
The consequences would be dramatic and force drastic political measures. Most expect the US to go to great lengths to keep up with its interest payments and repayments – to avoid a global financial market catastrophe.
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.