After an impasse, the United States House of Representatives approves a project to suspend the limit and avoid default. Without change, the world would be facing a new financial crisis. The United States House of Representatives approved this Wednesday (05/31) a bill that suspends the country’s public debt ceiling until 2025, thus removing the risk of a possible default, which could have global repercussions.
+ In the US, House approves debt ceiling bill and sends text to Senate
+ House of Representatives votes to lift US debt ceiling
With a House dominated by Republicans, the proposal received 314 votes in favor and 117 against. The project suspends the debt ceiling of 31.4 trillion dollars until 2025, that is, after next year’s presidential elections. In return, certain spending will be capped in fiscal year 2024, which runs from October this year to September next, to keep it stable, and spending can be increased by just 1% in fiscal year 2025. , restrictions military spending.
US President Joe Biden praised the deputies for taking “an essential step to prevent what would be the first default on the payment of the public debt of the United States.
The project now goes to the Senate, where the Democrats have a majority and the text must be approved. Senate Majority Leader Chuck Schumer has assured that he will present the proposal “as soon as possible” to “avoid default”, which could happen as early as June 5, according to the US Treasury Department.
A default could have devastating consequences for the US and global economy, given that the US is the world’s largest economy and the dollar is the currency of reference.
What is the US debt ceiling?
In 1917, the US Congress first introduced the debt ceiling, which limited the amount of money the government could borrow. With the measure, the government would no longer need the approval of legislators for each issued debt. Over the past seven decades, that ceiling has been raised 78 times.
The current ceiling of $31.4 trillion was reached in January, but the US Treasury Department has taken extraordinary measures to ensure government activities continue through early June.
To prevent the government from running out of money and defaulting, after a long impasse, the bill passed this Wednesday was negotiated between the president and the republicans.
How would the US default affect the global economy?
Before passing the House of Representatives, US Treasury Secretary Janet Yellen warned that “financial and economic chaos” would result from the failure of the debt ceiling increase and said the impasse in the negotiations was “a gun pointed to the head of Americans and the nation’s economy.
The Treasury Department predicted that the US would start running out of funds as early as June 1st. This situation would force expenditures to be prioritized so that debt and interest payments are made first. That could mean delaying salaries for tens of millions of public sector workers, including teachers, and the suspension of pension payments and health benefits.
Though if only temporary, an analysis by Biden’s economic team warned that even a “brief” default would cost the US economy 500,000 jobs. If it were extended, the country’s Gross Domestic Product (GDP) would plummet 6% with the loss of tens of thousands of businesses and around 8.3 million jobs – almost the same level as the 2008 financial crisis.
At worst, the US would have to stop borrowing altogether in July or August, sending further shock waves through global financial markets. Investors would then question the value of US bonds – which are seen as one of the safest investments and are the backbone of the world’s financial system.
A default could also seriously weaken global trade and send the rest of the world into a deep recession. It could also send the dollar crashing sharply, wreaking havoc with exchange rates and skyrocketing the price of oil and other commodities.
Global inflation could pick up again and the supply chain issues that reduced trade in the wake of the COVID-19 pandemic could worsen due to lack of confidence in the financial system.
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