America is said to be the economic superpower of the world. It has the reputation of being the largest economy in the world. Due to minor economic changes in the US, the economic condition of other countries in the world starts to shake.
The US economy is worth about 23 trillion dollars. But will this financial superpower get permission from Parliament to take more loans? Discussions about this have been raging.
The seriousness of this matter is evident from the fact that US President Joe Biden canceled the Quad meeting, which is a four-nation alliance against China.
Now there are discussions that the US cannot repay its debt. This may lead to the US being declared a bankrupt country.
This is happening because the US President needs the approval of the US Congress to take out a loan, and at the moment it seems difficult.
What is the loan limit?
The maximum debt that the US government can borrow to cover its spending is called debt sealing or the debt ceiling. This amount is decided by the US Congress i.e. Parliament.
The budget of many countries of the world, including India and America, is a deficit budget. That is, the government spends more money than it earns from taxes. In such a situation, the government has to take a loan to meet the payment.
This is a common procedure in America. The US Congress raises or lowers the debt limit only after looking at the state of the economy.
Since 1960, the US Congress has changed the debt limit 78 times.
House Speaker Kevin McCarthy held a news conference on the debt with Republican senators.
But this time, Biden is facing opposition from opposition Republican lawmakers. In exchange for raising the debt limit, Biden has been given several conditions. But these conditions are not acceptable to the ruling Democrats.
The thing to understand here is that the loan limit is not for future expenses. These things are decided during the budget.
Borrowing limits are related to immediate payments, whether the government has already spent or promised to spend money, debtors are standing at the door, salaries and pensions of government employees are in arrears.
Will America become a debt-ridden country?
Most experts believe that America’s debt ceiling crisis is more political than economic.
Many of the experts the BBC spoke to say the US will not become a debt-ridden nation. The current confusion will be resolved.
Because if the matter is not resolved, the situation can become very frightening.
It is very worrisome that the issue is said to be settled by a certain date. Because no one can tell when this matter will be resolved.
Experts say that after June 1, the condition of US treasury will worsen.
What next if Joe Biden is unable to raise the debt ceiling?
What if Biden is unable to raise the debt ceiling?
This possibility is not completely ruled out.
On this question, Simon French, chief economist at investment bank Panmur Gordon, says, “If something like this happens, it will be a much more difficult situation than the global financial crisis of 2008.”
And the important thing is, if the US Congress doesn’t raise the limit, the US can’t borrow any more.
In short, government works and other payments cannot be met.
What effect will this have on the US economy?
Suppose if the assistance to economically weak people stops, people will not be able to pay the bills of their daily needs. This will directly affect the economy of the country.
Moreover, it will directly affect the salaries of US government employees, benefits and government facilities for poor people.
People will have to be laid off in large numbers.
And now it has been estimated how big this hit can be.
The US President’s Economic Advisory Committee has made a statement. According to this, if the debt ceiling is not raised or postponed indefinitely, the US economy could shrink by 6 percent.
Even a one percent decline in the US economy can cause huge losses. And it will directly affect the lives of millions of people.
Cambridge University professor Mohammed Al-Arin said in a BBC podcast that if the US failed to repay the debt, ‘the country could be stuck in a vicious cycle of recession’.
What will be the effect on other countries of the world?
Now if we talk about the impact on the world it can be called ‘knock on effect’.
If the US central bank makes even a small change in interest rates, it will affect the rest of the world’s economies.
If the economy of 23 trillion goes down, obviously many countries of the world will be hit hard.
Countries like India will also be affected. Because the demand from America will decrease. If demand falls, exports will be affected, thereby affecting numerous companies in other countries.
Due to declining demand in the US, the software industry in India has also suffered a slowdown.
The biggest thing is that the world trades in dollars. Dollar is the reserve currency of many countries of the world.
If the US is unable to repay the debt, not only the reputation of the US but also the dollar will suffer.
Countries like India can benefit from this to some extent. But there will be a huge upheaval in buying and selling in dollars and this is not good for any economy.
Why did this matter go so far?
In a democratic system, it is not a new thing for the opposition to obstruct the policies and decisions of the government.
But the main reason for the lack of consensus on this issue is that the opposition Republican lawmakers feel that the government cannot afford to spend so much continuously.
The term used for this is called ‘unsustainable’.
Presidential elections are coming next year in America. And Democrat Joe Biden doesn’t want to let his popularity erode by cutting welfare programs.
On the other hand, the Republican Party has surrounded the government on the issue of increasing government spending.
What issues can be agreed upon?
Budget cuts before the election can be hard on the Democratic Party. But there are many issues that are being discussed. And there is a possibility of consensus on this.
The US had earmarked billions of dollars in its coffers to deal with the Covid pandemic.
The Republican Party demands that this fund be released. The Biden administration has announced that we are ready to release this fund.
Controversy continues over the imposition of strict conditions for obtaining government subsidies, subsidies to energy companies for bringing in modern technology, and conditions for granting loan waivers to students.
Both parties want to pursue their political interests in this dispute. Therefore, there is no consensus on these issues. It is said that a lot of effort will be required to reach a consensus.
And no doubt the whole world will be waiting with bated breath until this happens.
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