“Will the United States go bankrupt? The looming threat of default explained”

In recent weeks, the administration of President Joe Biden has multiplied warnings of a possible default. A situation in which the American federal state would be unable to pay the slightest penny to pay its civil servants, pay social benefits or quite simply reimburse its creditors. This scenario of an American payment default threatens from June 1, if no agreement is reached between the Democrats in power and the Republican opposition to raise the authorized public debt ceiling.

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Why is the US Congress unable to decide?

To understand the situation, you have to take a look at Washington. The House of Representatives is now held by a narrow Republican, conservative majority, opposed to Democrat Joe Biden. These Republicans, led by their leader, Kevin McCarthy, refuse to vote for an increase in the maximum debt ceiling until Biden accepts major budget cuts. Today, tax revenues are lower than expenditures.

The debt ceiling – the level that the State must not exceed under penalty of seeing its operation blocked – is set at 31,400 billion dollars (29,000 billion euros). However, the first world economy reached this level last January. Until now, the machine continues to turn thanks to accounting artifices and small budgetary arrangements, but the situation cannot last.

This is not the first time this situation has arisen.

The debate around raising the American debt ceiling reappears regularly during the mandate of presidents, whoever they are. But this time, the negotiations fall into the context of the presidential campaign. Neither outgoing President Joe Biden (candidate for a second term) nor the tenor of the conservative opposition, Kevin McCarthy, wants to appear as the first to bend to the other’s injunctions.

The concern is the same in the United States and in Europe: to cut public spending. A debt must be paid one day or another… Better not to increase it. It is hard to see how an agreement could not be reached by the cut-off date of June 1, but the psychodrama is starting to annoy the financial markets and government bonds are soaring. A financial rout of the American State would provoke an interplanetary cataclysm.