A staff member with the Architect of the Capitol uses a leaf blower on the East front of the U.S. Capitol Building on May 30, 2023 in Washington, D.C. [Photo/VCG]
Mismanagement, lack of strategic planning, and utter callousness in 2023 define America's approach toward addressing its debt ceiling crisis. This is despite the fact that the United States has been running a fiscal deficit since 2001. Yet the chaos which has rocked America has continued despite the fact that President Joe Biden held meetings with House Speaker, Kevin McCarthy, to negotiate a resolution. Now, in late May, no agreement has yet been reached, however, despite the June 1 deadline fast approaching. The consequences of this deadlock are that the world is being hung on tenterhooks as anxiety builds over what the future holds.
Weeks of negotiations in the country, which centered on raising America's debt ceiling, reached a deadlock as both Biden and McCarthy traded barbs and accused each other of obstinacy. Furthermore, divisions on partisan lines within the United States are visible, even regarding debt ceilings, with Republicans stating that federal spending cuts on low-income citizens must be implemented and the amount of government spending for future budgets be capped. Such sustained pressure is also taking place despite the fact that figures that will eventually be agreed upon during negotiations between the two parties will provide a framework through which legislators will sanction official dollar amounts for spending.
The clash between the two parties is translating into a prolonged impasse, which also relates to differences over the extent of the financial cuts. Republicans are calling for as much as $100 billion to next year's spending, while Democrats are content with accepting short-term reductions. The truth is that the U.S. government is turning a blind eye to the irrefutable fact that millions of investors around the world are banking on American government bonds as one of the safest forms of investment, where any disruption will jeopardize potential returns and lead to an economic meltdown. Given America's historical dominance over the global financial system, the 2023 impasse is wreaking both havoc and contributing to greater financial uncertainty. Furthermore, on the subject of public and global financing, the United States is imploding.
There is a clear lack of acknowledgment that the absence of agreement on whether to raise or suspend the debt ceiling is opening the door for the world's largest economy to default. This, in turn, could lead to significant selling of stocks, a spike in interest rates, more difficulty for world consumers in emerging economies and least developed countries (LDCs) to borrow, and a notable, persistent decline in purchasing power. The U.S. will essentially destroy the world economy despite being a country that has historically vouched for unregulated capitalism, global prosperity, high GDP growth rates, and corporatization as prerequisites for a just and stable world order. It is now playing a key role in upending it.
According to chief economist at Moody's Analytics, Mark Zandi, "no corner of the world will be spared" if the United States defaults. According to professor of trade policy at Cornell University, Eswar Prasad, a default would be a cataclysmic event with an unpredictable and probably dramatic fallout on global markets. Such a scenario will also destroy the $24 trillion U.S. market for Treasury debt and lead to a credibility crisis for the United States as a leading investment destination.
This impasse in Washington D.C. is taking place amid a global economy that is witnessing a plethora of threats that include widespread poverty, soaring inflation, and a Ukraine crisis that is leading to supply-side shocks. It is high time for sovereign states to take note, decrease their reliance on the American financial system, and understand that due to petty partisan politics, the health of the global economy is at stake.
The U.S. Congress, which has changed its borrowing cap 78 times since the 1960s, with the most recent time being in 2021, continues to be criminally negligent. Nothing has changed in 2023.
Hamzah Rifaat Hussain, a former visiting fellow at the Stimson Center in Washington and former assistant researcher at the Islamabad Policy Research Institute, is an anchor at ThinkTech Hawaii.
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