PRESIDENT Biden and his Republican opponents have announced they have agreed in principle to raise the US debt ceiling and to try to avert a catastrophic default that would lead to US banks going broke and millions of workers losing their jobs.
President Biden described the agreement as a ‘compromise’, while House Speaker Kevin McCarthy said it ‘was worthy of the American people’.
The deal, however still needs to be approved by a divided US Congress, with the US Treasury warning that the US will be bankrupted on 5th June without a deal.
Republicans are demanding spending cuts in education and many other other social programmes in exchange for raising the $31.4tn (£25tn) debt limit.
The CBS network has reported that non-defence government spending would be kept flat for two years and then rise by 1% in 2025. This alone means that millions of people who depend on the government programme that provides food-purchasing assistance for the poorest people will starve.
In his statement, President Biden described the agreement as a compromise which was good for the country ‘because it prevents what could have been a catastrophic default and would have led to an economic recession, retirement accounts devastated, and millions of jobs lost’.
McCarthy, for his part, referred to ‘historic reductions in spending, consequential reforms that will lift people out of poverty into the workforce’. In other words the poorest people face seeking the cheapest labour jobs or starving.
McCarthy boasted that: ‘There are no new taxes, no new government programmes,’ adding that he planned to finish writing the bill on Sunday, before having a vote in Congress on Wednesday.
Even if the bill is signed, the immediate effect will be that the government will quickly cut funds for welfare benefits and other support programmes.
A US recession will have a huge impact on dozens of countries. When the USA catches cold the rest of the world catches pneumonia!
The US dollar is the reserve currency of the capitalist world. Any weakening of the US dollar will cause panic across the capitalist world, eventually leading to prices of many commodities rising, and stock markets crashing.
The US government could start to run out of money within weeks unless it allows itself to borrow a lot more. There are dire predictions of immediate global financial chaos if US Congress can’t agree on a deal to raise the debt ceiling.
If the politicians fail to reach an agreement, the US will default on its debt.
This includes paying for federal employees, the military, Social Security and Medicare, as well as interest on the national debt and tax refunds.
The cap currently stands at roughly $31.4tn (£25.2tn). That limit was breached in January, but the Treasury Department used ‘extraordinary measures’ to provide the government with more cash while it figured out what to do.
Treasury Secretary, Janet Yellen is still warning that without more borrowing, the US will not have enough money to meet all of its financial obligations as soon as 1st June.
If the US defaults on its debt, the government would no longer be able to pay the salaries of federal and military employees, and Social Security cheques – payments that millions of pensioners in the US rely on – would stop. Companies and charities that count on government funds would be in peril.
If the government were to stop making interest payments on its debt, that would also put the country into default.
Moody’s Analytics predicts that a prolonged stand-off will see stock prices falling by almost a fifth and the economy would contract more than 4%, leading to the loss of more than seven million jobs.
Over the longer term, if investors start to see US debt as risky they will charge the US more to borrow money. And since government borrowing helps determine interest rates more widely, the impact would trickle out to the rest of the economy, making borrowing money for a home or a car more expensive for everyone.
If there were to be no deal, the President may bypass Congress by invoking the 14th amendment of the constitution, which states that the ‘validity of the public debt of the United States … shall not be questioned’.
This would usher in an open dictatorship by US capitalists over the working class and the poor.
The US working class will not tolerate this and neither will the working people of the world.
The only answer to this world crisis is for the workers of the world to rise up to overthrow world capitalism by organising for the victory of the world socialist revolution.
