The threats to the American economy and the currency, according to Biden.
Delays in raising the debt ceiling in the United States risk the country defaulting on its debt obligations, according to Joe Biden. The president listed three potential dangers, urging Republicans to avoid "playing Russian roulette" with the economy: first, the dollar's role as the world's reserve currency would be jeopardized; second, the US credit rating would be lowered; and third, national debt interest rates would rise. Analysts also factor in the possibility of a stock market crash, which has been a frequent companion of the global financial crisis.
The US Treasury's finances may run out by October 18 if Congress does not raise the borrowing ceiling, according to Janet Yellen, the director of the department, in a letter to the leaders of both parties. It is unclear if the Ministry of Finance will be able to "fulfill all of the country's commitments after this date," according to her. “We also know from prior deadlocks with the federal debt limit,” Yellen added, “that waiting until the last minute may significantly harm business and weaken consumer and investor confidence.”
In the meanwhile, lawmakers passed and the president signed a bill extending government financing until December 3rd. Remember that in the United States, a government shutdown occurs when Congress and the president can't agree on how much money to spend on the budget. Employees are placed on forced leave when the government partially shuts down (idle time). The draft budget for the next fiscal year (which begins on October 1 in the United States) included an increase in the maximum level of public debt, but the document was blocked by Republicans in the Senate.
In early August 2021, new limits on the level of government debt went into effect in the United States. The national debt ceiling was $ 22 trillion in 2019, however it was abolished in August of the same year. The debt reached $28.5 trillion in June 2021, prompting the Treasury to push for an increase in the debt ceiling to avert disastrous economic effects. Janet Yellen's department began taking "extra emergency steps" in August, including reducing investment in the fund that pays out old-age and disability pensions.
“Biden made it obvious that he was running out of patience, that it was time to find a compromise with his gentle in form but tough in essence,” says Nikita Maslennikov, a renowned specialist at the Center for Political Technologies. - A number of factors are putting pressure on market participants. The issue of public debt is inextricably linked to the quantitative easing program, the destiny of which will be determined at the Federal Reserve's November meeting. The regulator plans to put a stop to it. The Federal Reserve now purchases $ 120 billion in financial assets each month, with two-thirds of that amount coming from US government debt and the remaining third from mortgage bonds. Reduced Treasury securities purchases in the face of legislative uncertainty and a state debt ceiling entails an inherent risk."
The predicted Fed decision (combined with the uncertainty around the national debt ceiling) threatens to send the currency soaring. This, in turn, will increase the cost of managing the public debt for a number of countries, as well as the expense of servicing debts for businesses. By the end of the year, the world might be inundated by defaults, both corporate and in the world's most vulnerable countries. In reality, according to Maslennikov, the trigger for a new global catastrophe has already been set; all that is left is to push it.
Serious issues in China's real estate sector (which accounts for more than 20% of the country's GDP) are also complicating the situation, particularly the looming bankruptcy of Evergrande, the country's largest developer, which was late on its last payment. His tale is on par with what is happening in the United States in the eyes of investors. Maslennikov summarizes that these two "black swans" are still in flight.
Sergei Drozdov, a financial expert, adds, "I don't believe in the likelihood of an American default." - The dollar has long and clearly demonstrated that it is more alive than all other things, and the debate over the US national debt ceiling is nothing more than a matter of partisan bickering. Neither party will sever the limb on which they are perched. In 1998, there was a true default in Russia, when the treasury ran out of money and there was nothing left to pay the creditors. And the States are only threatened by the shutdown in the worst-case scenario. I recall that their sovereign credit rating was lowered from AAA to AA in 2011 owing to a similar problem with public debt. The S&P agency did it to protect their reputation, and the market correction was short-lived."