In light of the issue surrounding the U.S. debt ceiling, the two major American political parties have once again begun to "spar" with each other. The implications of this matter for the global financial system are so significant that investors from countries around the world are closely monitoring this "gossip event" that concerns the global financial market.
A U.S. debt default looms imminently.
The origins of this situation date back to May 1st. On that day, U.S. Treasury Secretary Janet Yellen sent a special letter to House Speaker McCarthy and other senior legislators. Yellen warned that the U.S. government could face a "U.S. debt default" as early as June 1st, which would be the first default in American history.
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The possibility of a "first-ever debt default" in the U.S.
Based on the previous income of the U.S. Treasury, after tax collection, the supplemented funds could sustain the U.S. government's finances until the end of July. Therefore, theoretically, the U.S. government would have more than two months before facing the ultimate "debt default."
However, with the continuous interest rate hikes by the Federal Reserve and the subsequent recession of the U.S. economy, the taxes collected this time were not as much as expected, with a reduction of over 20% compared to the previous rate cuts. This has led to the U.S. government's debt default being advanced to early June. There is even a possibility of a substantial debt default as early as June 1st.
As a result, Yellen sent a special letter to House Speaker McCarthy and others to inform them that there is less than one month left before the first debt default in U.S. history, and they need to take immediate action.
However, McCarthy and Yellen's Democratic Party are actually arch-rivals. The U.S. House of Representatives is controlled by the Republican Party, while the U.S. government is controlled by the Democratic Party, so McCarthy is not likely to easily let the Biden administration pass and arbitrarily raise the debt ceiling.
Moreover, the Republican Party is in the right on this issue because continuing to raise the debt ceiling, although it can solve the U.S. debt default issue in the short term, will only lead to an increasingly large debt in the long run with this debt-rolling model, making it difficult to resolve.
Therefore, House Speaker McCarthy, led by the Republican Party, has announced a bill called the "Restrict, Save, and Grow" Act. This bill allows the U.S. government to raise the debt ceiling by $1.5 trillion.However, McCarthy also has a demand, which is to limit the spending of the Democratic government, reduce the subsequent federal government budget to the level of 2022, and limit the annual expenditure growth to 1%, thereby saving $4.5 trillion in expenditure. This bill has also been passed in Congress.
So in my opinion, the Republican bill is actually quite "sustainable" after all, as the U.S. debt ceiling has been raised repeatedly, and it will explode one day.
But the Biden administration does not think so. Biden clearly stated that raising the debt ceiling should not be subject to any conditions, just as it was in the past. And even if he gets this contingency plan, he will not sign it. And according to U.S. law, as long as Biden does not sign, the bill will not take effect.
Of course, seeing the debt ceiling time advanced, Biden himself was also panicked. He called the congressional leadership on May 1, inviting them to attend the debt ceiling meeting on May 9 to discuss how to solve the debt problem together.
Biden stated that he would not sign this conditional bill.
However, before waiting for the meeting on the 9th to start, the two parties in the United States began to "argue endlessly" again.
On May 3, the White House warned that the debt ceiling should be raised as quickly as possible. Once a debt default occurs, the U.S. economy will be severely hit, leading to a large number of company bankruptcies, and millions of people will lose their jobs.
The report from the White House Council of Economic Advisers pointed out in more detail that once the U.S. debt defaults, the United States will lose 500,000 jobs in the short term, the unemployment rate will increase by 0.3%, and GDP will decrease by 0.6%.
What's worse, since a U.S. debt default will directly affect the direction of the financial market, after the debt default, the U.S. stock market will plummet by 45%, leading to a 6.1% decrease in U.S. GDP and a severe financial and economic crisis in the United States.
To be honest, due to the United States' overly important position in the global financial market, if the United States defaults, not only will the U.S. stock market be ruined, but basically all investors in A-shares will also be ruined.Does everyone still remember the stock market crash in the United States in 2020? The A-share market was affected at that time, and individual stocks almost all opened with a limit down. Therefore, in fact, China also does not hope for a U.S. debt default. The impact on us in the short term is still very severe.
Once the U.S. debt defaults, then the U.S. stock market will collapse.
Such a heavy consequence is actually said to the Republicans, Biden uses the consequences of debt default to put pressure on the Republicans, the purpose is to hope to reach a bill to unconditionally increase the U.S. debt ceiling.
Biden even said to the media, "Raising the debt ceiling is something that every Congress has done," this debt issue is purely a Republican刁难 us, it is a man-made crisis from beginning to end.
In fact, for Biden, the Democrats have no other choice, because agreeing to the Republican proposal means that the Democratic government will find it difficult to have enough funds to implement insurance, welfare, support high military spending and other large expenditures.
And only by raising the debt ceiling without limiting fiscal expenditure can the United States continue to print money, issue debt, stimulate the economy, and solve various domestic problems.
Biden doesn't have much time left.
To be honest, if the Federal Reserve prints another $5 trillion this time, don't talk about the Ukrainian conflict, the U.S. banking crisis, this $5 trillion can basically solve all the short-term problems faced by the United States.
Did the Republicans back down this time? No, the attitude of the Republicans in Congress is very clear, they insist on asking Biden to first accept significant cuts in government spending, and then vote to decide to increase the U.S. debt ceiling.
They also responded that it was because the U.S. government's past irresponsible increase in spending that led to the increase in the U.S. debt ceiling, for which the Democrats should bear the main responsibility.The Democrats are also unwilling to take the blame, arguing that when the Republicans were in power, they also increased the deficit and raised the debt ceiling. Why should all the blame be placed on the Democrats?
So now the situation is a mess, with neither side willing to compromise. The Democrats and Republicans are locked in a fierce battle, with the Republicans proposing a conditional bill, but Biden has indicated that he will absolutely not sign and compromise. Both sides are at an impasse, with only time relentlessly slipping away.
Now, the Federal Reserve, the only entity that can print money and flood the market, has also begun to pass the buck.
On May 3rd, when mentioning the US debt crisis, Federal Reserve Chairman Powell announced: "No one should think that the Federal Reserve can protect the economy from the potential short-term and long-term impacts of a debt default." "Officials discussed the risks of the debt ceiling, but it did not affect the interest rate decision."
The situation has reached a point where, for now, the Democrats and Republicans are at odds with each other, and the Federal Reserve has started to pass the buck and stand by. If this continues, the United States is getting closer and closer to this debt default.
Federal Reserve Chairman Powell has begun to "pass the buck," claiming that he is not responsible for the debt issue.
The American grassroots people are the biggest losers.
The entire US government seems to be stuck in a deadlock. The Democratic and Republican parties blame each other, and no one is willing to compromise. The Democrats need to raise the debt ceiling without limits to maintain high spending, while the Republicans insist on cutting government spending as a prerequisite.
And time is mercilessly passing, with the day of debt default getting closer and closer. If there is a default, the US economy will face collapse, and the global financial system will also be severely impacted. Although the Federal Reserve has started to pass the buck and not take responsibility, no one really believes that the Federal Reserve can protect the economy in this situation.
Everyone is blaming each other, but they have forgotten the original intention - to serve the ordinary American people. In this environment of mutual struggle, the real victims will only be ordinary people. No matter which side wins, the vast grassroots people will ultimately pay the price.So in the end, I feel that it's like a saying goes: Politicians argue incessantly, yet they forget who elected them. Who will be hurt this time?
It won't be the American elite, nor the Democratic and Republican parties; the ones who suffer the most are only the ordinary American people and innocent countries and people around the world.