USA before default? No agreement in the debt limit dispute

Default on June 1st?
No agreement in the US debt dispute: Treasury Secretary warns of dramatic consequences

Treasury Secretary Janet Yellen warns of US default

© Brendan Smialowski/AFP

A US default would be unprecedented – and could trigger a global financial crisis. Since this scenario is imminent, a solution must be found. But the Democrats and Republicans just can’t agree.

Even after a meeting with high-ranking Republicans and Democrats in the White House, there is no breakthrough in sight in the dispute over the US debt ceiling. “We agree that we will continue our discussions and meet again on Friday,” said President Joe Biden on Tuesday evening (local time) after exchanges with leaders from both parties. A US default is not an option, the Democrat said. If the debt ceiling is not raised soon, there could be an unprecedented US government default – which could plunge the global economy into a crisis.

US Treasury Secretary warns of default

In the USA, the parliament sets a debt ceiling at irregular intervals and determines how much money the state can borrow. The debt ceiling is currently around 31.4 trillion US dollars (about 28.6 trillion euros). In the meantime, this debt ceiling has been reached and the US Treasury must tap into the capital reserves – because the US is now no longer allowed to take on any new debt to pay its bills. Biden and his Democrats need the Republicans in Congress to raise the debt ceiling. However, they are opposed to an increase without significant savings in certain government spending.

In order to find a solution to the dispute, Biden received, among others, the Republican chairman of the US House of Representatives, Kevin McCarthy, on Tuesday. “Everyone in that session repeated the positions that they had. I didn’t see any new movement,” McCarthy said of the meeting afterwards. His party colleague Mitch McConnell, the Senate Minority Leader, tried to calm things down: “The United States will not default, it never did and it never will.” He also participated in the exchange with Biden. The expectations for the meeting had been low in advance.

Joe Biden also wants to talk about savings

US Treasury Secretary Janet Yellen warns of a possible government default on June 1st. A default by the world’s largest economy could trigger a global financial crisis and a severe economic downturn. The US would then no longer be able to pay most of its bills – millions of people could lose their jobs as a result. When a newly elected Republican majority in Congress delayed raising the debt ceiling in 2011, the US credit rating was downgraded for the only time in history.

Biden was open to talking to the Republicans about cuts, “but not under the threat of a default.” The Democrat also did not rule out canceling upcoming trips abroad if there was no solution to the dispute. Biden plans to travel to Japan for the G7 summit next week. This is followed by an onward journey to the Pacific island state of Papa New Guinea and to Australia.

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DPA

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