Biden signed it! Avoiding an economic crisis and collapse, global attention has been paid to debt | United States | Economy

On June 3rd local time, US President Biden officially signed a bill on the federal government's debt ceiling and budget, suspending the debt ceiling until early 2025 and imposing spending restrictions on fiscal years 2024 and 2025. This is the 103rd time since the end of World War II that the United States has adjusted its debt ceiling. Previously, the bill had already been passed in the United States House of Representatives and Senate.

Treasury Secretary Yellen previously warned congressional leaders that the federal government may run out of funds on June 5th, and if Congress does not raise the debt ceiling before Monday, it could lead to an economic disaster.

Biden speaks self praise

The day before, Biden delivered a speech in the Oval Office of the White House, celebrating the agreement between the Democratic and Republican parties. This was also Biden's first national speech in the Oval Office since taking office. According to the full speech released on the White House website, Biden stated that Congress's approval of the debt ceiling agreement "reversed an economic crisis and collapse.". He praised the Republican Speaker of the House, McCarthy, the Republican leadership team, and White House advisors involved in the negotiations, stating that both sides are completely honest with each other and have kept their promises.

Biden emphasized that if the agreement negotiations fail, the US economy will fall into recession, millions of Americans' retirement accounts will be destroyed, and 8 million Americans will lose their jobs. In addition, a default would damage the credit rating of the United States, making all funds from mortgages to car loans to government funds more expensive to use. It takes several years for the United States to emerge from the pit. The position of the United States as the world's most trusted and reliable financial partner will be shattered.

Biden also took this opportunity to review his economic achievements and recount the benefits of the debt ceiling agreement. He also used the agreement reached between the two parties as an example, calling on the people to stop confrontation and bridge differences.

Biden signs debt ceiling bill to suspend debt ceiling until January 2025

According to previous reports from American media, the core of the bipartisan agreement is that the Republican Party has agreed to suspend the $31.42 trillion federal government debt ceiling until January 1, 2025. As an exchange, Biden agreed to limit federal spending for fiscal years 2024 and 2025, with non defense discretionary spending remaining at the current fiscal year level.

Specifically, the agreement includes six main contents. Firstly, in response to the Republican Party's request to tighten the regulations on receiving relief benefits, certain age groups must meet certain job requirements to receive government relief, and cannot rely solely on government relief without work. However, the Democratic Party is still seeking some leniency for homeless individuals and veterans; The second is that both sides have temporarily put aside their differences on energy development issues, but have retained the huge funds for clean energy development that the Republican Party is attempting to abolish in the agreement; Third, the unused funds for COVID-19 epidemic prevention were recovered. The Democratic Party has always insisted that these unused epidemic prevention funds should continue to be used according to the original plan, otherwise it will affect future epidemic prevention work and the well-being of ethnic minorities; The fourth is to reduce funding to the US Internal Revenue Service. Last year, the Democratic Party strongly recommended $80 billion in funding to the US Internal Revenue Service to increase its efforts to crack down on wealthy tax evasion and upgrade its information system. According to the agreement, a portion of this allocation will be recovered; The fifth is to set a limit on government spending and not increase non defense spending. Six is to maintain education loans, and Republicans have been wanting to cancel Biden's plan to waive some student education loans.

But spending cuts did not involve the defense sector. According to the agreement, the US defense spending for fiscal year 2024 is $886 billion, an increase of 3% from the current fiscal year. McCarthy's agreed defense spending is the same as the Biden administration's defense budget plan for the fiscal year 2024.

Rating agencies will continue to place the US credit rating on a negative watch list

On May 24th, due to the United States not raising its debt ceiling for a long time, rating agency Fitch added the country's "AAA" long-term foreign exchange issuer default rating to the negative watch list. Although the US Congress approved the debt ceiling agreement on June 2nd, Fitch announced in a statement that it will continue to place the US credit rating on a negative watch list. The agency stated that this decision is to consider all the impacts of the US "periphery policy" as well as the medium-term fiscal and debt situation. Previously, due to the United States not raising its debt ceiling for a long time, rating agency Fitch Ratings added the country's "AAA" long-term foreign exchange issuer default rating to the negative watch list on May 24th, which is also a prelude to the downgrade.

Fitch believes that reaching an agreement on the debt ceiling in the United States against the backdrop of intensified political partisan disputes has sent a positive signal. But the continuous political standoff between the two parties over the debt ceiling issue and the last minute suspension of the debt ceiling before the X day have lowered investors' confidence in the government's finances and debt management capabilities.

The institution further pointed out that over the past 15 years, the governance of the US fiscal and debt issues has "continued to deteriorate", with political polarization and partisan disputes intensifying. The United States continues to adopt a "peripheral policy" on the issue of debt ceiling, failing to effectively address the challenges posed by the country's growing mandatory spending, resulting in an increasing fiscal deficit and debt burden.

In addition, Morningstar, the world's fourth largest credit rating agency, has also placed the US sovereign credit rating on a negative watch list. Credit rating agency China Chengxin International has also lowered the sovereign credit rating of the United States and will continue to be on the watchlist for possible downgrades. But the other two sovereign rating agencies, S&P and Moody's, have not yet adjusted the ratings of the United States.