Concerns on the D-7 of a possible bankruptcy of the United States
Bankruptcy threat… and parliamentary holidays: A week before a possible default in payments by the United States, elected representatives of Congress returned to their constituencies on Thursday, due to the lack of an agreement with President Biden on raising the debt ceiling .
Despite day-and-night discussions, the Democratic leader’s teams and Republican camp negotiators have yet to find a budget agreement. But these talks are “productive”, assured executive spokeswoman Karine Jean-Pierre on Thursday, seeing it as evidence that there was “a way forward” towards an agreement.
“Each side has to understand that no one will get everything they want,” he said. And President Joe Biden was optimistic, assuring there would be “no default”. Without an agreement, the United States could default on payments by June 1, ie be unable to honor its financial commitments, whether it is a question of salaries, pensions or payments to their creditors.
Like almost all major economies, the United States lives on credit. But this is an American exclusiveness, it is the prerogative of Congress to vote on raising the maximum amount of public debt that the world’s largest economy is authorized to accumulate, currently set at about $31,000 billion.
Republicans this time refuse to raise this famous “ceiling” without conditions, demanding drastic cuts to the budget before giving the green light. Democrats refuse. And each camp blames the other for this situation.
The main Republican protagonist in this case, Kevin McCarthy, uses and abuses a metaphor, comparing Democrats to a child who rejoices over his credit card limit. “After a while, do you continue like this or are you trying to change his behavior?” he regularly asks the press.
The US President initially refused to discuss under threat of bankruptcy.
He eventually made several proposals to reduce the federal state bill to his Republican opponent Kevin McCarthy, head of the House of Representatives, but it was not enough.
“built from scratch”
A singular atmosphere reigns in Washington: A few days from a potentially catastrophic default, most observers seem confident, certain that a settlement will be found. In the absence of a major breakthrough in talks, elected representatives in Congress have left the US capital as the long holiday weekend of “Memorial Day” approaches.
However, Boss of the House of Representatives demanded that he be prepared to return to Washington immediately if an agreement was to be reached in his absence. In fact it is very common to compromise on this type of file at the last minute. The economic world showed its first signs of shock. Ratings agency Fitch issued a warning Wednesday keeping the United States’ AAA rating “under watch.”
The US Treasury on Thursday denounced a “fabricated crisis” fueled by conservatives in Congress refusing to vote to raise the debt ceiling, a necessary maneuver to avoid bankruptcy. This unprecedented situation will have potentially devastating consequences for the US and global economy.
For the first time, holders of US Treasury bonds, the kings of global finance, could no longer recover their investments.
And the consequences will extend beyond the economic world. It would also have “national security consequences”, warned US Chief of Staff General Mark Milley on Thursday. “Paying troops”, “weapons systems, contracts, all this will be disrupted”, he said, noting that it will harm the “readiness, capabilities and morale” of the army.