Sputnik
The spectacle in Washington over the debt ceiling (i.e. restrictions on how much the government is allowed to borrow), has pushed the White House to claim America’s adversaries are rubbing their hands in anticipation of a US default. But in a globalized world, the US defaulting on its obligations threatens to take the rest of the planet with it.
Senate Minority Leader Mitch McConnell signaled to the White House that he’s ready to play hard ball, signing a letter together with over 40 of his GOP colleagues addressed to Democratic Senate Majority Leader Chuck Schumer warning that Republicans would not support “any bill that raises the debt ceiling without substantive spending and budget reforms.”
McConnell and McCarthy want deep cuts – including trillions in spending gone from the budget over the next decade on a range of programs, including hundreds of billions from Biden’s lavish climate agenda.
The US federal government is projected to run out of money and default on its debt as soon as June 1, with Treasury Secretary Janet Yellen urging lawmakers to get their act together before plunging the country into economic turmoil.
America’s budget deficit ballooned by more than $1.1 trillion in the first half of fiscal year 2023, $430 billion above what it was during the same period in 2022. The US hasn’t run a budget surplus since 2001. The failure to match revenue and spending has led to a ballooning of the national debt, from about $3 trillion in 1989 to over $31.7 trillion today – with the debt jumping by about $15 trillion in the past decade alone. Total debt – which includes the national debt plus state, local and individual obligations, has surpassed $96 trillion – less than 10 trillion shy of the world’s entire gross domestic product of $103.8 trillion in 2022.
But the real “test” may be just how well the rest of the world will be able to manage the fallout of a US debt crisis and financial collapse.
In 1929, a market crash on Wall Street triggered a global depression that affected most of the planet and ultimately culminated in the Second World War. Eighty years later, another US market crash triggered a global "Great Recession," shaving trillions off US and global economic growth and depriving an entire generation of young people entering the workforce of decent jobs – with many workers, both young and old, subsequently dropping out of the labor market.
China, Russia, and other BRICS economies have done their best to prepare for another US economic collapse, ramping up economic cooperation, forging new banking agreements, and making efforts to reduce dependents on the petrodollar, US technology, and escape the control of US-controlled financial institutions.
But this process remains incomplete. As some observers have pointed out, a US default would be “devastating” for global markets, undermining faith in the US financial system - the second largest in the world after China by total banking sector assets, and potentially triggering a domino effect.
While the US’ global share of world economic output has dropped from 32 percent in 1980 to 24 percent in 2020, and its share of global trade fell from 14 to 11 percent over the same period, the dollar remains the go-to instrument of international exchange, accounting for about 59 percent of foreign central banks’ holdings, and 74 to 96 percent of all trade in the world, depending on region.
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