After the recent meeting between US President Joe Biden and congressional leaders, no breakthrough was made on the issue of raising the US government’s debt ceiling. As a result, concerns are growing over the potential “catastrophic” impact on both the US and global economies if the US defaults on its obligations.
Failure to raise the debt ceiling could lead to the US government being unable to pay its bills from as early as June 1, which could result in a recession in the US and severe consequences for the global economy. US officials and analysts have warned that while US officials often reach a deal at the last minute, brinksmanship over the issue could still create instability in global financial markets.
The budding fallout
The on-going debate over raising the US government’s debt ceiling has sparked concerns among economists, including Roger Ferguson of the Council on Foreign Relations, that the US may default on its debts. This scenario, if it were to happen, could lead to chaos for the US and global economies, according to experts. Even if the debt ceiling is not breached, hitting it would seriously hamper the government’s ability to fund its operations, such as providing for national defense and entitlements like Social Security and Medicare.
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The potential repercussions of hitting the ceiling include a downgrade by credit rating agencies, higher borrowing costs for businesses and homeowners, a drop in consumer confidence, and a possible recession. According to Goldman Sachs economists, breaching the debt ceiling would immediately halt about one-tenth of US economic activity. In case of default, the consequences could be much worse, including the loss of three million jobs, a $130,000 increase in the cost of an average thirty-year mortgage, and a national debt increase of $850 billion.
Higher interest rates could also divert future taxpayer money away from critical federal investments in infrastructure, education, and healthcare. Treasury Secretary and former Federal Reserve Chair Janet Yellen has warned Congress that failing to meet the government’s obligations would cause irreparable harm to the US economy, the livelihoods of Americans, and global financial stability.
The potential domino effects
According to experts, a U.S. default could have catastrophic consequences for the global financial markets. The U.S. dollar has been the world’s reserve currency, largely due to the creditworthiness of U.S. treasury securities. Any damage to confidence in the U.S. economy, whether from a default or uncertainty around it, could result in investors selling U.S. treasury bonds and thus weakening the dollar. As over half of the world’s foreign currency reserves are held in U.S. dollars, a sudden decrease in the currency’s value could have far-reaching consequences for the market for treasuries, causing the value of these reserves to plummet.
With many heavily indebted low-income countries already struggling to make interest payments on their sovereign debts, a weaker dollar could increase the relative cost of debts denominated in other currencies, potentially tipping some emerging economies into debt crises.
Although a weaker dollar could make U.S. exports more competitive by effectively making them cheaper, U.S. firms could face higher borrowing costs from rising interest rates. The dollar’s instability could also benefit China, which has long sought to promote the use of its renminbi as a global reserve currency. However, the currency accounts for less than 3 percent of the world’s allocated foreign reserves.
Options for the Government
According to experts, failure to raise the debt ceiling by Congress could lead to a U.S. default, which would have severe consequences for the U.S. and global economies. It could damage the creditworthiness of U.S. treasury securities, which have long supported the demand for U.S. dollars and its status as the world’s reserve currency. This could lead to a decrease in the value of the U.S. dollar and prompt investors to sell U.S. treasury bonds. More than 50% of the foreign currency reserves held globally are denominated in U.S. dollars. Therefore, a sudden decline in the value of the dollar could have a ripple effect on the treasury market, as the value of these reserves decreases.
The Treasury can delay default by employing “extraordinary measures,” such as suspending payments to some government employee savings programs and delaying auctions of securities. While the Treasury has used these measures when negotiations have previously stalled, a long impasse over the debt ceiling can shake investor confidence and prompt a credit rating downgrade, increased borrowing costs, and a drop in consumer confidence that could shock the U.S. financial market and tip the economy into recession.
The failure to raise the debt limit despite such emergency measures could lead to federal spending cuts or significant tax increases. However, these processes are viewed as time-consuming, and experts have warned that political brinksmanship that engenders even the prospect of default could be disruptive to financial markets and American businesses and families. Treasury Secretary Yellen has warned that extraordinary measures could be exhausted by June 1, 2023, if the debt limit is not raised.
Probable impacts on dollar dominance and geopolitics
The potential consequences of the U.S. defaulting on its debt are significant, particularly in terms of the global economy and the role of the U.S. dollar as the world’s primary unit of account. Over half of world trade is currently conducted in U.S. dollars, giving the U.S. government and American companies a significant advantage in international trade and finance. Other countries must either export more than they import or borrow more dollars or euros to pay their foreign debt, whereas the U.S. is free from these constraints and can run up large trade deficits without facing the same consequences.
The dominance of the U.S. dollar also means that American companies are not as subject to exchange rate risk as their foreign competitors, as they can buy and sell in their own currency. This gives them a significant competitive advantage in international trade. If the U.S. were to default on its debt, the dollar would likely lose its position as the international unit of account, forcing the government and companies to pay their international bills in another currency.
Furthermore, the dollar’s dominance gives the U.S. significant political power, as trade must go through an American bank at some point. This has allowed the U.S. to impose economic sanctions on countries such as Iran and Russia, limiting their access to the dollar and causing significant economic pain. No other country could unilaterally impose this level of economic punishment on another country. Overall, defaulting on its debt could have far-reaching consequences for the U.S. economy and its position in the world.
Baada ya mkutano wa hivi karibuni kati ya Rais wa Marekani Joe Biden na viongozi wa bunge, hakuna mafanikio yaliyopatikana katika suala la kuongeza kiwango cha deni la serikali ya Marekani. "Kwa hivyo, wasiwasi unazidi kuongezeka juu ya athari ya ""madhara"" ya uwezekano kwa uchumi wa Marekani na uchumi wa kimataifa ikiwa Marekani itashindwa kutimiza wajibu wake." Kushindwa kuongeza kiwango cha madeni ya nchi hiyo kunaweza kusababisha serikali ya Marekani kushindwa kulipa bili zake kuanzia Juni 1, na kusababisha mfumuko wa uchumi nchini Marekani na athari mbaya kwa uchumi wa dunia. "Maafisa wa Marekani na wachambuzi wametoa onyo kwamba ingawa mara nyingi maafisa wa Marekani hufikia makubaliano katika dakika ya mwisho, ""mtazamo wa hatari"" juu ya suala hilo bado unaweza kuunda ukosefu wa utulivu katika masoko ya kifedha ya kimataifa." Mjadala unaoendelea kuhusu kuongeza kiwango cha juu cha madeni ya serikali ya Marekani umesababisha wasiwasi miongoni mwa wataalamu wa uchumi, ikiwa ni pamoja na Roger Ferguson wa Baraza la Mahusiano ya Nje, kwamba Marekani inaweza kushindwa kulipa madeni yake. "Hiyo inaweza kusababisha ""mashaka"" katika uchumi wa Marekani na uchumi wa dunia, wataalamu wanasema." Hata kama kiwango cha juu cha madeni hakitapigwa, kuipiga ingezidisha sana uwezo wa serikali ya kufadhili shughuli zake, kama vile kutoa ulinzi wa kitaifa na haki kama vile Usalama wa Jamii na Medicare. Trump amehukumiwa na mahakama ya Marekani kwa makosa ya unyanyasaji wa kingono, na matokeo ya kutokuwa na haki ya kisheria ya kuamua ni kupunguzwa kwa kiwango cha mikopo ya kampuni za kukadiria, kuongezeka kwa gharama za kukopa kwa wafanyabiashara na wamiliki wa nyumba, kupungua kwa uaminifu wa watumiaji na uwezekano wa kushuka kwa uchumi. Kulingana na Goldman Sachs, kuvunja kiwango cha juu cha madeni kwa muda mrefu kutazuia karibu sehemu ya kumi ya shughuli za kiuchumi za Marekani. "Kama serikali itafanya hivyo, matokeo yatakuwa mabaya zaidi, ikiwa ni pamoja na kupoteza kazi milioni tatu, ongezeko la $ 130,000 katika gharama ya mkopo wa wastani wa miaka 30 na ongezeko la deni la kitaifa la $ 850 bilioni. """ Viwango vya juu vya riba pia vinaweza kugeuza pesa za walipa kodi wa siku zijazo mbali na uwekezaji muhimu wa shirikisho katika miundombinu, elimu, na huduma za afya. Waziri wa fedha wa Marekani na mwenyekiti wa zamani wa Fedha Janet Yellen ameonya Bunge la Marekani kwamba kushindwa kutimiza wajibu wa serikali kutasababisha madhara yasiyoweza kurekebishwa kwa uchumi wa Marekani, maisha ya Wamarekani na utulivu wa kifedha duniani. "Kulingana na wataalamu, ""detachment ya Marekani inaweza kuwa na matokeo mabaya kwa masoko ya kifedha ya kimataifa.""" Dola ya Marekani imekuwa sarafu ya hifadhi ya dunia, hasa kutokana na sifa ya mkopo wa dhamana za hazina ya Marekani. Uharibifu wowote kwa uaminifu katika uchumi wa Marekani, iwe ni kutokana na default au kutokuwa na uhakika kuzunguka, inaweza kusababisha wawekezaji kuuza dhamana za hazina ya Marekani na hivyo kudhoofisha dola. Kwa kuwa zaidi ya nusu ya akiba ya fedha za kigeni duniani huhifadhiwa kwa dola za Marekani, kupungua kwa thamani ya fedha hiyo kwa ghafla kunaweza kuwa na matokeo makubwa kwa soko la dhamana za hazina, na kusababisha thamani ya akiba hizo kupungua. "Kwa kuwa nchi nyingi zenye madeni makubwa na mapato ya chini tayari zinashindana kulipa riba kwa madeni yao ya serikali, dola dhaifu inaweza kuongeza gharama ya kiasi cha madeni yaliyoandikwa katika sarafu nyingine, na uwezekano wa kuingiza baadhi ya uchumi unaojitokeza katika mgogoro wa madeni. """ Ingawa dola dhaifu inaweza kufanya mauzo ya nje ya Marekani kuwa na ushindani zaidi kwa kuwafanya kuwa nafuu, makampuni ya Marekani yanaweza kukabiliwa na gharama za kukopa za juu kutokana na kuongezeka kwa viwango vya riba. Uwezo wa dola ya Marekani pia unaweza kuwanufaisha China, ambayo kwa muda mrefu imejaribu kukuza matumizi ya renminbi yake kama sarafu ya hifadhi ya kimataifa. Hata hivyo, sarafu hiyo inawakilisha chini ya asilimia 3 ya akiba ya kigeni iliyotengwa ulimwenguni. "Wanachokubaliana na wataalamu wa masuala ya fedha wanasema kwamba kukosa kwa Bunge kuongeza kiwango cha juu cha madeni ya nchi inaweza kusababisha kushindwa kwa Marekani kukamilisha madeni yake, na kusababisha athari kubwa kwa uchumi wa nchi hiyo na uchumi wa dunia.""" "Hiyo inaweza kuharibu sifa ya fedha za Marekani ambazo kwa muda mrefu zimekuwa zikisaidia mahitaji ya dola za Marekani na hadhi yake kama sarafu ya hifadhi ya dunia.""" Hii inaweza kusababisha kupungua kwa thamani ya dola ya Marekani na kuchochea wawekezaji kuuza dhamana za hazina ya Marekani. Zaidi ya asilimia 50 ya fedha za kigeni zilizowekwa duniani kote zinawekwa katika dola za Marekani. Kwa hiyo, kupungua kwa thamani ya dola kwa ghafla kunaweza kuwa na athari kubwa kwenye soko la hazina, kwani thamani ya akiba hizi hupungua. Hazina inaweza kuchelewesha default kwa kutumia "hatua za ajabu", kama vile kusimamisha malipo kwa baadhi ya mipango ya kuokoa wafanyakazi wa serikali na kuchelewesha mnada wa dhamana. Wakati Wizara ya Fedha imetumia hatua hizi wakati mazungumzo yamekwisha, mgogoro mrefu juu ya kiwango cha deni unaweza kutikisa imani ya wawekezaji na kusababisha kupunguzwa kwa kiwango cha mkopo, kuongezeka kwa gharama za kukopa, na kupungua kwa uaminifu wa watumiaji ambao unaweza kushtuka soko la kifedha la Amerika na kuingiza uchumi katika mtikisiko. Kushindwa kuongeza kikomo cha deni licha ya hatua hizo za dharura kunaweza kusababisha kupunguzwa kwa matumizi ya shirikisho au ongezeko kubwa la kodi. Hata hivyo, mchakato huu unaonekana kuchukua muda, na wataalamu wameonya kwamba siasa za hatari ambazo huunda hata matarajio ya kushindwa kwa malipo ya kifedha zinaweza kusababisha usumbufu kwa masoko ya kifedha na biashara na familia za Marekani. Waziri wa fedha wa Marekani Yellen amesema hatua za kipekee za serikali za Marekani zinaweza kukamilika kufikia Juni 1, 2023, ikiwa kiwango cha madeni ya nchi hiyo hakitapandishwa. "Madhara ya uwezekano wa Marekani kushindwa kulipa deni lake ni muhimu, hasa katika suala la uchumi wa dunia na jukumu la dola ya Marekani kama kitengo cha msingi cha akaunti ya dunia. """ Zaidi ya nusu ya biashara ya dunia sasa inafanywa kwa dola za Marekani, ikitoa serikali ya Marekani na makampuni ya Marekani faida kubwa katika biashara ya kimataifa na fedha. Nchi nyingine lazima au ziende nje zaidi kuliko zinavyoingiza au kukopa dola zaidi au euro ili kulipa deni lao la nje, wakati Marekani ni huru kutoka kwa vizuizi hivi na inaweza kukimbia upungufu mkubwa wa biashara bila kukabiliwa na matokeo sawa. Uongozi wa dola ya Marekani pia inamaanisha kwamba makampuni ya Marekani si chini ya hatari ya kiwango cha kubadilishana kama washindani wao wa kigeni, kama wanaweza kununua na kuuza katika sarafu yao wenyewe. Hii huwapa faida kubwa ya ushindani katika biashara ya kimataifa. Ikiwa Marekani ingekuwa na default juu ya deni lake, dola ingekuwa uwezekano wa kupoteza nafasi yake kama kitengo cha kimataifa cha akaunti, kulazimisha serikali na makampuni kulipa bili zao za kimataifa katika sarafu nyingine. Kwa kuongezea, udhibiti wa dola unampa Marekani nguvu kubwa ya kisiasa, kwani biashara lazima ipite kupitia benki ya Marekani wakati fulani. Hii imeruhusu Marekani kuweka vikwazo vya kiuchumi juu ya nchi kama vile Iran na Urusi, ikipunguza upatikanaji wao wa dola na kusababisha maumivu makubwa ya kiuchumi. Hakuna nchi nyingine ambayo inaweza kulazimisha kiwango hiki cha adhabu ya kiuchumi kwa nchi nyingine. Kwa ujumla, kushindwa kulipa madeni yake kunaweza kuwa na matokeo makubwa kwa uchumi wa Marekani na msimamo wake ulimwenguni.