What Biden said
U.S. President Joe Biden during the G7 summit in Hiroshima, Japan, asked journalists to “be quiet” when they began vying to ask him questions about a possible default.
The American President was speaking with Australian Prime Minister Anthony Albanese when the media began to loudly ask him to comment on the situation with the United States debt ceiling. “Calm down, okay? Thank you,” Biden said as journalists began to interrupt his speech.
The President used the American idiom “shush up”, which is a milder version of the established expression “shut up” – “shut up.” It is often used to calm children who have screamed. Other options for transferring turnover are “be quiet”, “be quiet”, “calm down.”
At the same time, Biden still tried to answer some of the questions about a possible default. He said that he was absolutely calm about this and had already held several rounds of negotiations with representatives of the Republican Party to increase the borrowing limit. According to the President of the United States, if the first negotiations did not bring any significant result, then the subsequent ones gave a positive effect.
“I still believe that we can avoid default and do something decent ”, Biden concluded.
What’s happening to the US national debt
The United States reached its $31.4 trillion debt ceiling on January 19 this year, prompting the US Treasury to notify Congress of the need to take “extraordinary” measures. Since the beginning of spring, the head of department, Janet Yellen, has repeatedly warned congressmen that the money in the treasury will run out by June 1, 2023.
This situation has developed due to the fact that members of the Republican Party in Congress do not allow from January 2023 to increase the maximum level of public debt. At the same time, America’s budget is in deficit, and it is critically in need of new borrowing. The United States has no problems attracting new creditors – their government bonds are highly valued on the international market.
The Republicans propose to increase the national debt ceiling by $1.5 trillion. But in return they demand a reduction in budget spending by $4.5 trillion. The corresponding bill was hardly introduced in Congress by the House of Representatives, since representatives of the Democratic Party voted against the spending cuts.
Democrats, including Yellen, want to raise the borrowing limit, but without any conditions. Biden also supports them: he stated that he was against any budget savings, and promised to veto a project that would reduce government spending.
At the same time, the president said that a default was “not an option.” According to the head of state, in this case, the US economy will plunge into recession, and the international reputation will be severely undermined.
What will happen in case of default
Such a large public debt (and the US has the largest in the world in absolute terms) does not indicate problems in the economy. The US government debt has been on the rise since 2001. But over time, its maintenance becomes very expensive for the treasury. For example, in 2022, payments to U.S. bondholders reached $475 billion — more than 8% of the budget. According to the forecasts of financiers, in 2023 this amount may increase to $ 700 billion.
medical insurance. In addition, the Treasury will also not be able to service the US government debt, that is, pay coupons to holders of US government bonds and redeem paper at face value on time. This means a default.
Analysts note that even under the worst-case scenario, America’s default will be technical – when the state has money to pay creditors, but there are difficulties with their transfer. Moody’s Analytics wrote at the beginning of the year that a US default would have macroeconomic consequences comparable to the 2008 crisis. In addition, demand for raw materials will begin to decline, a “chain reaction” with the debt obligations of other countries will begin.
funds and covers expenses from account balances and current tax revenues (which in the spring of 2023 turned out to be lower than forecasts). The New York Times reported in late April that the Treasury had about $300 billion left on its balance sheet.