On the "Temporary" and "Permanent" Presidents of the US Debt Crisis | Debt | Permanent

Just two days before the US Treasury Department was expected to be unable to repay national debt, President Biden signed the so-called 2023 Financial Responsibility Act, which has been approved by both houses of Congress regarding the federal government's debt ceiling and budget.

At this point, the months long struggle between the two parties has come to an end, and the potential first US government debt default has been temporarily avoided.

Screenshots of a report by The Washington Post

After signing the bill, Biden wrote on social media, "I just signed a bipartisan budget agreement to prevent the first debt default in history... Now, we will continue to build the world's strongest economy."

△ Biden posts on social media

Literally, this seems like a remarkable "success". But as for how the United States will continue to build the world's most powerful economy, people really can't understand.

Is the US government facing the danger of shutting down again?

According to this legally binding bipartisan agreement, the US government debt ceiling will be suspended until January 1, 2025, to meet government borrowing needs before the November 2024 election and ensure that the next partisan dispute over the debt ceiling will not interfere with the presidential election.

As an exchange, Republicans are calling for limiting government spending for the next two years by reducing other budgets while continuing to increase defense spending; Meanwhile, taxes will not increase.

Screenshot of BBC website report

Who will be affected if we don't increase taxes and also reduce government spending other than military spending in the next two years?

It is generally believed that due to the US government's unrestrained spending measures to stimulate the economy and employment in recent years, the cliff like restriction of "non defense discretionary spending" will inevitably affect financial market liquidity, bringing new impacts to the already high interest rate affected US economy.

At the same time, the inflation rate remains high, and the impact of the Federal Reserve's interest rate hikes is also spreading in the economy, and the consequences of credit tightening caused by several bank failures since March are still difficult to measure.

Reuters: A recent national economic survey report released by the Federal Reserve shows that in recent weeks, the outlook for the US economy has been more sluggish than before, with signs of cooling in employment growth. In some places, due to weak demand and increased uncertainty, many companies have planned to suspend recruitment or start layoffs.

Spending recklessly when it is not appropriate, but when money is really needed, there is actually no money available. This is the true "efficacy" of the bipartisan debt ceiling bill in the United States.

That's not all for now.

Due to the Republican hardliners insisting that there are too many compromises with Democrats in the bipartisan bill and that the Biden administration's spending cuts are not strong enough, some Republican congressmen have suggested that the party can use the funding process to negotiate more concessions.

It should be noted that the debt ceiling only allows the government to borrow more money to pay the already generated bills, and it does not provide funding for the government itself. The main source of funding for the government relies on congressional appropriations.

That is to say, if Congress fails to pass the new fiscal year funding bill that supports the government's operations before the arrival of the new fiscal year on October 1st, the government will once again face the risk of "shutting down".

Republican congressman Thomas Massey threatened on social media that "the condition for raising the debt ceiling is for the president to make concessions through opaque negotiations, which is a way to accomplish the task. But we can and should use powerful congressional tools, such as funding procedures, to control government spending more transparently and accurately.".

"The same crisis will eventually reappear"

The compromise reached at the last moment between the two parties only resulted in delaying the resolution of the problem for two years.

This only indicates one point: the real threat to the United States is not a "US debt bomb", but an endless "party bomb".

As The New York Times has pointed out, although both parties have reached a debt ceiling agreement, the party struggle may still reappear in the future due to unfulfilled demands from both parties, and the debt ceiling issue will make a comeback after 2025.

Screenshots of a report by The New York Times

In the final analysis, the reason why the United States has a debt ceiling and why the debt ceiling has become a party issue is all due to the "debt" issue.

Compared to the debt ceiling debate, more people are now concerned about how much debt the United States owes will continue to inflate, and how long the "borrowing new debt to repay old debt" model can persist.

The wild growth of US bonds is due to the backing of the hegemony of the US dollar. By leveraging this hegemony, the United States can shift its own risks and harvest global wealth through interest rate hikes, and can also arbitrarily impose unilateral sanctions on other countries.

To this day, the debt owed by the United States has reached an astronomical figure of $32 trillion. As long as the way the United States accumulates debt remains the same, the amount of US debt is bound to be only slightly higher.

Some comments point out that the current fiscal situation in the United States is already very poor, and the bipartisan debt ceiling agreement cannot solve the out of control debt problem. The biggest loser in this behind the scenes transaction is the American people, who have grown tired of America's "deaf politicians".

△ Screenshot of Fox News report

From a global perspective, the successive rounds of debt accumulation and the two party debt ceiling debate have already eroded the credibility of the US government.

The international rating agency Fitch Ratings recently stated that although the United States has passed a debt ceiling bill, considering the full impact of the recent political stalemate in the United States, as well as medium-term fiscal and debt trends, the credit rating of the United States will still be maintained in a "negative observation" state.

Screenshots of reports from the US Consumer News and Business Channel website

The Times of India published an editorial pointing out that due to the role of the US currency and debt markets in the global financial system, the marginalization policies demonstrated by both parties in the US are not only their own problems, but also have an impact on other countries such as India.

The editorial states that the risk of another debt crisis in the United States remains high when the suspension of the debt ceiling ends in January 2025, due to the political conventions that have made the US financial markets and the US dollar the pillars of the global financial system being "almost shattered".

△ Times of India: Since 1960, the US debt ceiling has been raised 78 times

The review article on the US "Market Watch" website bluntly states that as the debt ceiling shifts from a trivial matter of maintaining government operations to political football, "the crisis that has just been resolved will eventually reappear, and it will be even more difficult to deal with at that time.".

"Ultimately, as long as the debt ceiling is not abolished and all expenditures are included in budget and funding legislation, the United States' debt default crisis will never have its last time."

Screenshots of reports from the "Market Watch" website in the United States