• In an unprecedented situation the US government is on the verge of Defaulting on its borrowing that could potentially hit economies around the world.
  • The US government has never defaulted, and a default could have catastrophic consequences for America and for the world.
  • The issue was serious enough for the American President to cancel his recent visit to Australia and then to Papua New Guinea.

What happens if the govt defaults?

  • In case of default, the American government would no longer have the money to function, and it will have to cut short its expenses.
  • If the congress fails to increase the debt limit, it would cause severe hardship to American people and harm America’s global leadership position.
  • According to the analyst the dollar would weaken, the stock markets would collapse, and millions might lose their jobs.
  • Besides a default would downgrade the US credit rating thus making future borrowing more expensive.
  • The crisis in the US will have wider repercussions for the rest of world and no corner of the world would remain unaffected if the US government defaults.

The Republican Vs Democrats tussle?

  • While Biden wants to raise the debt ceiling in order to fulfil the promises he made during his campaign, Republicans want to thwart some of Biden’s key plans, such as writing off student debt, etc
  • Nevertheless, Republicans are ideologically fiscal conservatives, while Democrats believe the government should spend more on social welfare schemes.
  • While the Democrats say the spending should be kept at 2023 levels, the Republicans have demanded that spending be kept at 2022 levels in the next financial year.
  • Besides Biden has proposed shoring up revenue by taxing the rich more and closing tax loopholes for the oil and pharmaceutical industries.

What is the possible way out?

  • The present situation in US is similar to 2011 when Barack Obama was President but the House of Representatives was controlled by Republicans.
  • In 2011, the crisis ended, only after the Obama administration agreed to spending cuts worth more than $ 900 billion.
  • Most experts are of the opinion that the current debt limit process isn’t working. And the debt ceiling is a terrible way to try to impose fiscal responsibility.



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