Who imagines the United States defaulting? The world’s largest economy, with a gross domestic product of over $23.3 trillion (eight times larger than France’s!), is threatened with not being able to spend a single penny from June 1 due to political dissension at the top of the state. “The consequences would be catastrophic for citizens across the country and around the world,” worried Joe Biden in a tweet.
The American president was forced to shorten his stay in the Pacific on the occasion of the G7, which was held last weekend in Hiroshima, to continue negotiations in Washington around the American debt ceiling. It is this very specific point that strains relations between Joe Biden’s camp and the Republican opposition. If no agreement is reached on this subject before the end of the month, the American Federal State will be in default of payment.
The US federal government cannot spend public money lavishly. The Congress, which brings together the two chambers of the American parliament, sets a limit on the federal government’s indebtedness. This is what the authorities call the “debt ceiling” – literally “the debt ceiling”.
This device was put in place in 1917, when the United States decided to engage in the First World War. The necessary amounts then pushed the country into debt on the markets. To restrain then-President Woodrow Wilson, Congress set him a maximum debt threshold of $1.9 billion. By dint of negotiations and agreements between the legislative and executive powers, the ceiling reached 31.4 trillion dollars a century later, and once again threatens to be crossed.
The Treasury Secretary, who holds the purse strings across the Atlantic, recalled this weekend that the United States must imperatively raise the debt ceiling before June 1. “I indicated in my last letter to Congress that we expected not to be able to pay all of our bills by the beginning of June, or even as soon as June 1,” she said on television.
Concretely, the United States would find itself unable to settle its debts on the markets, to issue social benefits, and even to pay the salaries of federal state officials. The American media are worried, for example, about military spending, including soldiers’ pensions, which represent one-sixth of the federal budget.
Before specifying that “default of payment is not an option”, President Joe Biden estimated at eight million the number of Americans who could instantly lose their jobs if this assumption were to be verified. It is important to note that the United States has never found itself in such a situation. Economists remain relatively optimistic about the outcome of the negotiations, even if the financial markets are beginning to shudder. A constitutional weapon could also allow Joe Biden to avoid catastrophe.
The thorny question of the “debt ceiling” is at the heart of the American political arena. Democratic President Joe Biden can no longer escape Republican opposition since the midterm elections put Donald Trump’s party in the majority in the House of Representatives. Their agreement is essential for raising the ceiling.
However, the Speaker of the House of Representatives, Kevin McCarthy, was appointed to his post on a line of budgetary rigor. It is he who leads the negotiations today and conditions an increase in the ceiling (up to 1500 billion dollars) to budget cuts of 4500 billion over ten years. “My position hasn’t changed, Washington can’t keep spending money that we don’t have,” Kevin McCarthy said over the weekend.
The Republican demands are deemed “unacceptable” by Joe Biden, who lambastes proposals “that protect billions in subsidies for big oil companies while putting the health care of 21 million Americans at risk. Or who protects wealthy tax evaders while jeopardizing food aid for 1 million Americans.”
Former President Donald Trump, who retains significant influence within the opposition party, has added fuel to the fire. He encouraged his flock to “cause a default” in the event that Democrats refuse “massive cuts”. An exit that provokes the ire of the White House. “America has never defaulted on its debts. And it will never be the case,” hammered Joe Biden on Twitter.
