“This shows how dysfunctional the political system is in the US”
Marey argues that the debt ceiling battle demonstrates how “dysfunctional” the political system is in the United States. Whenever Republicans have a majority in the House of Representatives, this process repeats itself. This problem was already present in 2011 and this led to a downgrade of the United States.’
Default
The US is currently grappling with massive debts, making bankruptcy seem imminent. As a result, the country would default on repaying its debts. If America defaults, benefits and wages can no longer be paid and the country is no longer able to borrow. That thinking is leading to a slow decline in confidence in financial markets, Marey also notes.
‘See on the money market for which people have a preference Treasury bills – expire in the short term. There is a fear that if people lend money to the government in the long term, it will not be paid back,” explains the US strategist. “The markets were already preparing and the situation is only getting worse.”
On my knees
The midterm elections in the United States seem to give an extra key to the jobs. Republicans want to get rid of a number of plans by President Joe Biden. But Biden doesn’t want to bow, so it looks like this political impasse will soon bring the country to its economic knees.
“It will be a stalemate”
Last week, Republicans passed a bill in the House of Representatives that seeks to cut spending in exchange for raising the debt ceiling. But Biden doesn’t want to get into that. He wants to raise the debt ceiling in an unconventional way. So it will be a stalemate,’ explains Marey.
Incredibly fast
But the concrete deadline of June 1 that has now been announced by Yellen is getting closer and closer. ‘Partly because of disappointing tax revenues, more money needs to be borrowed, but the debt ceiling is already high and has risen sharply. So the Republicans want to cut spending, but the Democrat Biden doesn’t want it, it will be a tense situation,’ thinks Marey. “And the June 1 deadline is alarming, for Democrats and Republicans alike.”
The US strategist therefore expects both sides to hold their cards in the foreseeable future, before finally reaching a last-minute decision to temporarily suspend the debt ceiling. ‘This buys them time, but I think both sides will eventually have to compromise. It will be very precarious in the coming months.’ In a week, President Biden will discuss the debt ceiling with Republican and Democratic leaders.