The U.S. Treasury Department said on May 1 that the U.S. could run out of money by June 1. If no action is taken by Congress to raise the debt limit, the U.S. government would be unable to pay its bills at that time. What could that mean for the U.S. and global economies?
The U.S. Treasury told Congress on May 1 that the U.S. could run out of money by June 1. That means the U.S. wouldn’t be able to pay its bills, and the repercussions would be felt globally.
To avoid that scenario, legislators would have to raise the government’s borrowing authority. It's a difficult task, given that Democrats and Republicans don’t agree on terms to make it happen.
Democrats want a clean increase of the debt limit without conditions to avoid defaulting.
"For months Democrats have been clear. The full faith and credit of the United States cannot be held hostage. For months we asked Speaker McCarthy and Republicans to present a plan, a real plan, to avoid default with no brinksmanship, no hostage-taking. But instead of presenting a viable plan, last week Speaker McCarthy and House Republicans passed the Default on America Act, a hard-right ransom note to the American people," said Senate Majority Leader Chuck Schumer. "Republicans' Default on America Act poses two terrible choices. Either default on the debt, or, default on our country," he added.
House Republicans passed a bill on April 26 to slash spending in exchange for raising the debt limit. Cuts would target programs that provide medical and food assistance among others.
It's a bargaining position, as the bill has little chance of passing the Democrat-led Senate.
"We've done our job. I've sat down with the president on February 1st. He ignored the rest of the time. He treats it just like the border. He wants to ignore and thinks it goes away. That doesn't work in America. He's putting the American economy in jeopardy by his lack of action," said Kevin McCarthy, Republican Speaker of the House of Representative on April 26.
A possible unprecedented U.S. debt default could have catastrophic ramifications. Experts say it could threaten the value of the dollar and tip the country into a recession. A default could also impact the government’s ability to finance Medicare and Social Security.
"For over 200 years, America has never, ever, ever failed to pay its debt. To put it in capital and colloquial terms, America is not a deadbeat nation," said U.S. President Joe Biden.
Experts believe the U.S. entering a recession would drag other fragile economies into recession too. Some hypothesize that a U.S. default would throw established global trading protocols into disarray.
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