America on the brink of default

► What is the US financial situation?

Here America once again faced the “debt ceiling” mentality. US President Joe Biden this Tuesday, May 9, the main Democratic and Republican leaders of Congress agree to avoid a new event. shutdown. This situation of budget impasse on the other side of the Atlantic is due to the lack of congressional approval – the House of Representatives and the Senate – of an increase in the public debt ceiling.

However, as of mid-January 2023, the federal government has reached this cap, which is set at $31 trillion. But Republicans, who hold a slim majority in the House of Representatives beginning in 2022, refuse to hand over what they see as a blank check in favor of the Biden administration and want to increase the cap. A drastic cut in federal spending.

A few days ago, at the end of April 2023, representatives from the Republican camp adopted a speech that would reduce federal spending by 4,500 billion dollars over the next ten years, in exchange for a ceiling increase of 1,500 billion debt.

► What’s up with Joe Biden?

The US president has repeatedly said that raising the ceiling should be carried out “without conditions”. Joe Biden believes the debt is the result of policies made by all past administrations, both parties.

Without an agreement on the matter, its groups have warned that the US will no longer be able to honor its commitments from early June. This will bring the country to an unprecedented level of normalcy.

► What are the opportunities?

At this point, Ostrum Asset Management’s chief economist, Philip Vector, remembers. “Treasury was able to avoid this decision, above all by taking the first series of accounting measures to avoid exceeding the authorized limit”. Second, encrypt the website Finance for allIt could be “Force the government to close public services deemed essential (for example, museums or national parks) that it can no longer finance”. This is what happened during the previous shutdown in January 2019.

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However, this time, the crisis may go a step further. If the impasse continues, the US will default on its debt obligations “Financial and Economic Chaos”, Treasury Secretary Janet Yellen said in a letter released on Sunday, May 7.

► Can the worst be avoided?

“Janet Yellen did not play scared, and the consequences are immeasurable. Philip analyzes the vector. The dollar, like US Treasuries, is the anchor of the entire international financial system. Who would still believe in a crumbling pillar system? he asks. Such a hypothesis seems impossible because it would have disastrous consequences for all countries. »

In this chapter this economist looks at a “Severe Extra Turbulence” Across the Atlantic, after the jitters caused by the last-minute bailouts of two US bank bankruptcies in March.

Is it possible for us to reach a point of no return? Democrats have actually called for national unity. “It is time to put aside partisan interests and do what is right and necessary for the little onesAvoid the first government default that would crush the American people and markets, raise costs for families and hurt their savings for retirement. On Monday, May 8, the Democratic leaders in Congress, Chuck Schumer (Senate) and Hakeem Jeffries (House), estimated in a joint report.

But the political atmosphere is particularly tense with the prospect of the November 2024 presidential election on April 25, contested by Joe Biden. “Some Republicans can be too ‘tough,'” Philipe Waechter is afraid.

There is little time for the two parties to reach an agreement: The current parliamentary session offers only twelve days of debate on Capitol Hill between now and June 1.

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