Cao Zexi: The debt limit negotiations are so difficult. Why dont the United Stat

Source: Wall Street Seewan

Author: Cao Zexi

Recently, a hot topic about the US economy is the debt limit.

But the "debt limit" has now become a popular issue, and may even disrupt the financial market, because if it does not increase the upper limit of debt, or eventually leads to the first time in the U.S. government to default on some debt in history.

Now that it is getting closer to the "limited day", US Finance Minister Yellen warns that economic and financial disasters will be caused by ourselves.

What is the debt limit?

Nowadays, the United States is getting closer and closer to the federal debt limit of less than US $ 3.1.4 trillion (S $ 4.1 billion). Once it is touched, it means that it may lose its ability to pay all debt.

Some economic analysts believe that if the tax in the second quarter is in place, the Ministry of Finance can obtain gaspace, and may be supported to July through unconventional measures.However, under the general trend of population aging, pension and medical insurance expenditures are increasingly large. The US "debt -raising day" model is destined to be difficult to maintain. In the next years, it may continue to face similar crises.

The U.S. Congress set up the upper limit for the government's debt. Once this upper limit is touched, members must increase the debt limit or suspend the execution of the debt limit, and then the Ministry of Finance can issue more bonds.Due to huge fiscal deficits in the United States every year, the problem of federal debt limit must be regularly resolved.

What is the progress of negotiations between the US Congress and the government?

The US House of Representatives passed a bill proposed by the Republican Party on April 26, requiring the government to cut US $ 4.5 trillion in federal financial expenditures in the next 10 years and cancel some of the clean energy tax reduction policy.Under the previous mention, Congress will approve the amount of debt up to $ 1.5 trillion.

The White House said that Biden will reiterate in a meeting on the 9th that Congress must "cleanly" increase the debt limit without any conditions.Judging from the current political atmosphere and the latest trends, Biden may be as difficult as possible.

Yellen said that the limited day may be June 1.Since mid -January, the US Treasury Department has been using so -called unconventional measures -such as detention of funds paid by federal employee retirement funds -to repay debts and delay the arrival of a limited time.Once these measures are used, the situation will become even more terrible.

What will happen if you default?

If a default occurs, this will be exceeded market expectations.Many people and companies did not think that the U.S. government would rely on them. These creditors including social security funds, soldiers, families with children, the providers of the MEDICARARARRARRARRARRAR PEREDICARE and U.S. Treasury holders.In addition, the federal government may shut down.

If the U.S. government cannot pay bonds on schedule, it will bring a chain reaction. Credit rating agencies will reduce US Treasury bond rating, which will lead to the increase in debt costs of the US government, enterprises and residents.

The White House Economic Consultant Committee said that if this happens, the US economy "growth trend will quickly reverse, and the depth of economic decline is related to the duration of breach of contract".From the current strong growth to one million people's unemployment. "

Even if it is too close to the debt limit, as in 2011, it may also affect the US credit rating and weaken consumer confidence.

Why is there a debt limit?

The United States set up a debt limit in 1917, mainly to simplify procedures for the investment in the First World War, and the United States divided debts into different categories, so that Congress will not need to approve each bond separately.In 1939, which broke out in World War II, Congress created the first limit of the total debt in the history of the United States, and gave a broad degree of freedom to the Ministry of Finance's debt issuance.Raising the debt limit will allow the US government to use more money to make up for the difference between the expenses that Congress has approved and tax.

Before 1953, the increase in debt limit was a routine event that would not cause controversy.However, in 1953, the Senate did not approve the upper limit. The purpose was to restrict the then President Eisenhower. He asked Congress to approve the upper limit of the debt -lifted to the construction of the national highway system.Since then, the debt limit has been increased by dozens of times, and there are usually no disputes between the two parties.For example, when Trump was the president, the two parties agreed to increase the upper limit of debt.

According to the records of the research and service department of the Congress of the Congress of the Capitol, since 1978, Congress has issued a number of debt limit with other bills to 32 times.The game results mainly depend on the comparison of the two parties.The analysis of Xinhua News Agency pointed out:

From the perspective of past experience, the two parties often drag to the last moment, forcing a variety of pressures, and after repeatedly weighing the interests, it will reach a certain compromise.However, I am afraid that the game process will be particularly "ugly."

At present, the Republican party has a weak advantage in the House of Representatives. The bill of binding debt limit is only two votes.Reuters believes that in the Senate controlled by Democrats, the bill "has no chance" to pass the level; even if you are lucky enough to pass the barrier, according to the previous statement of the White House, Biden will also use the presidential veto to suppress the bill.

Another key factor is that the election of the 2024 election has blew the horn, and Bayeng officially announced the willingness to re -election for re -election.The two parties' use of various chips, including the "debt limit", to attack each other and "demolition" have become normal and intensified. Now, in order to compete for the White House and the main position of parliament, it is more difficult for both parties to make concessions.

Can the debt limit be canceled directly?

In the face of this point of power often appearing in the U.S. government and Congress, some budget experts and commentators suggest that they simply cancel the upper limit of debt. They believe that Congress's quarrels from time to time on this issue will increase economic uncertainty.There have been various proposals about canceling the upper limit of debt, but they have been rejected by the American government.

These ideas include cast platinum coins and store them in the Federal Reserve, or announce that the debt limit violates the 14th amendment of the Constitution on the prohibition of questioning of federal debt.

Yellen warned that the system of the US Treasury Department was not designed to give priority to the holder of bond holders, and failed to fulfill any payment obligations that would substantially constitute a breach of contract.She also refuted a platinum coin with a face value of $ 1 trillion to avoid breach of contract; this idea had been proposed as a way to bypass Congress many years ago.

Citing the 14th Amendment of the Constitution for debt issuance is another idea of the White House recently considered; the 14th Amendment of the Constitution stipulates that the effectiveness of US public debt is "not questioned."It is understood that the relevant discussion inside situations have revealed that Biden government officials have spent time to judge relevant legal considerations and potential market reactions, but government lawyers still have extremely doubtful attitudes.Biden has said that the White House is studying this idea, but it does not think that once the negotiation breaks, this will help solve the problem quickly.

In recent years, a new idea has received a lot of attention, that is, the Ministry of Finance issued a premium bond.Because the issue interest rate of this bond is much higher than that of ordinary bonds, investors will bid to increase subscription prices, so that the government can return cash, but in order to avoid the face value of the upper bonds of the debt, the face value will decrease.However, Both Yellen and Fed Chairman Powell insisted that the US Congress must take action in terms of raising debt limit.