If the United States is characterized as insolvent, this will have serious consequences for the international financial system, predicts BlackRock vice president Philipp Hildebrand. “It’s not something you want to mess with,” he warns. Hildebrand, also a former head of the Swiss central bank, hopes the problem will be resolved in time. He argues that if the US defaults on creditors, it is an “anchor” that can threaten the financial system. “It can’t happen.”
Republicans want to demolish Biden’s workhorses
US President Joe Biden therefore wants to raise the debt ceiling. Republicans, however, simply don’t want to participate in this. They therefore ask for changes in budgets. Speaker of the House of Representatives and Republican leader Kevin McCarthy presented a plan that proposed a $130 billion cut. On the other hand, the debt ceiling will be raised by a trillion and a half dollars.
Republicans especially want to cut plans on which Biden wants to profile himself. This pertains to climate plans, healthcare and the Inflation Reduction Act where conservative politicians want to cut spending. Republicans also want to scrap the plan to cancel much of America’s student debt. The White House, however, criticized the plans, saying House Republicans were “holding the American economy hostage.”
Big consequences
However, US Treasury Secretary Janet Yellen wants “drastic steps” taken before early June to avoid bankruptcy. The debt ceiling is currently $31.4 trillion. However, the US already tapped that amount in January, but a financial trick allowed it to build up an $800 billion reserve. However, Americans cannot do that trick again. At some point this summer, the United States will therefore hit the ceiling again. As a result, for example, the United States can no longer pay interest on outstanding debts. Also, the money can no longer be spent on government officials, money on health care and social services.