Why the United States is bankrupt (hypothetically) – Corriere.it

from today United State I am in default bankruptcy.

anyway Life goes on as usualAnd the rest of the world ignores the news, here in America this topic is on the front pages of all newspapers and in the editorial headlines of the news. Certainly this does not go unnoticed in the palaces of power in Beijing and Moscow. a Defaulting on the sovereign debt of the United States The dream of Xi Jinping and Vladimir Putin can come true: it would be a massive blow to the imperial status of the dollar.

One of the pillars of the role of the United States is that monetary. dollarOnly real world currencyThe liquidity of the US financial market is unparalleled, and Treasury bills issued by the Washington government are the most accepted security, the safe haven asset par excellence. This imperial system gives the United States unlimited power to spend and borrow: they will always find someone to finance new debts. Side effects tooEffectiveness of sanctions against enemy states: cutting them off the dollar ring is serious harm. It seems that US politicians abused this imperial status because they accumulated debts of 31,400 billion dollars, which is equivalent to 130% of GDP. A previously record-breaking percentage error for Italy Of course, Italy has a much smaller economy: only a tenth of the US economy. The United States federal debt is a corruption like no other in the world.

The current default bankruptcy stems from one A clash between the Republican-majority House and the White House. Congress has the final say on budget laws. The government is subject to a debt ceiling each year, which is codified into a law passed by Congress. The last maximum was precisely set at $31.4 trillion and was reached yesterday. To continue borrowing, the US Treasury must obtain permission from the legislature. In the House of Representatives, Republicans refuse to vote for a higher ceiling. They demand that Joe Biden negotiate with them about cutting public spending. Biden does not want to open these negotiations at the moment. So Treasury Secretary Janet Yellen announced that starting today she must take extraordinary measures to be able to continue paying public salaries, pensions, and interest on government bonds. Among emergency measures, Yellen stopped making provisions to feed public servants’ pension funds. Other measures, progressively tougher and more painful, will become necessary if this deadlock persists. as far as The risk of complete default, an unheard-of event that went down in history as countries like Argentina and Pakistan, and certainly not the United States. The US Treasury boasts that it has consistently paid its debts since its existence for more than two centuries.

In this emergency situation, there is also an element of kabuki theater, where the two actors on the stage play their part by making a fierce face. Something similar happened in 2011 when Barack Obama was in the White House. The tug-of-war lasted for a long time, a partial closure of some public offices was reached, and foreign tourists that year found the national parks closed because the forest rangers were at home without pay. Eventually a compromise was reached, and Obama agreed to implement caps on public spending. But in the meantime, a technical default came close and US Treasury bonds, for the first time in history, suffered a downgrade. But in the following year’s election, Obama was re-elected against Mitt Romney: in the Democratic Party’s budget, he deposited this belief that the tug of war on debt had hurt the Republicans.

Today, the Republican Party is trying again, led by a handful of Trumpists, who, although in the minority, have occupied important roles. They accuse Biden of being the main culprit of inflation, because he has provided so much public aid during the pandemic. This judgment is shared by authoritative left-wing economists, such as former Treasury Secretary Larry Summers. As for the surplus of anti-Covid aid, which has inflated the purchasing power of American consumers (to a total of 5,000 billion), it has already begun during the Trump presidency. In fact, Trump was not a classic Republican, he easily used the tools of public spending. Biden has continued in his footsteps, but inflation has exploded under his presidency (peaking at 9% in the middle of last year, now at 6.5%).

In any case Fight easy spending He seems to have gained popularity again among the Republican base. The old big party MPs who want to ride it to the bitter end are Trumpists but they don’t necessarily follow Trump’s direction. Among the items of expenditure at the points of intersection there is also aid to Ukraine. US debt is actually an anomaly, double the historical average verified from 1940 to 2022 which was 65% as a share of GDP. From Obama to Biden, the balance within the Democratic Party has shifted in favor of the left wing, whose philosophy on taxation and spending has been summed up as follows: He has never had a problem in the world that hasn’t been dealt with. Additional public spending.

the A tug of war between the Biden administration and the council It will likely continue into the summer. It will cause jitters in financial markets even if there is no rating downgrade, or the apocalypse of technical default: the latter will happen only if the Treasury stops paying interest on outstanding government bonds. The scenario is complicated by the fact that America is also suffering from the impact of interest rate hikes on its public finances. Its debt service, i.e. the interest paid on outstanding US securities, already reached $576 billion last year but will be much higher this year due to the effect of the interest rate hike alone.

Putin and Xi Jinping have refined analysts of the American situation. They certainly avoid easy victories, they don’t throw away bottles of champagne, they know the possibility of true sovereign bankruptcy is very remote. At the same time, they draw confirmation from these events: to weaken the prestige of the great power of the United States, A.A The threat may come from their own domestic politics.