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The feud between Democrats and Republicans may trigger a default in the United States, which in turn will harm the nation’s economy. Meanwhile, the constantly growing public debt that hit a record $31.4 trillion fans the flames.
In this light, the GOP advises the government not to pay social and medical aid to people, while the Democratic Party invites it to increase the debt limit. However, the US authorities do not listen to those proposals, fearing such moves could undermine the country's credit ratings.
According to Mark Zandi, a chief economist at Moody's Analytics, the United States will enter a recession in 2023. Earlier, US Treasury Secretary Janet Yellen called on to expand the debt ceiling to avoid such a turn of events. Otherwise, the government would not be able to pay its bills. Nevertheless, many experts disagree with this approach and consider the $31.4 trillion borrowing limit to be artificial.
They believe that the current situation is in the interests of both Republican Democrats who want to allocate funds the way they need. At the same time, the GOP proposes to tie spending to the country's GDP. Some economists call it a practical and progressive idea. They think that the bigger the GBP, the higher the likelihood of borrowing. As for Democrats, they advocate for further expansion of the debt limit.
Against this backdrop, there is an increased risk of a default in the United States. A new national currency for the country and some of its allies could be one of the ways out of the situation. Yet, it would be an extreme measure. In fact, financial circles already discussed such a possibility in 2008.
The United States might also restructure its national debt. Such an outcome would not mean a default. However, the government would not be able to pay its bills. Indeed, current bond, social, and insurance payments are made through new borrowings.
The US government does not want to lose its status as a reliable borrower as it would mean shifting the payment due date. Experts assume that the United States might soon meet with the largest holders of its debt, including Japan ($1.08 trillion) and China ($870 billion), to tackle the issue.
Published 03 February 2023
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© Instant Trading EU Ltd
