On the 26th (local time), several medias reported that the US Congress passed a budget bill to suspend the federal government’s debt ceiling and spend $3.5 trillion on welfare. Although the bill is scheduled for processing, the Republican Party is strongly opposed, which could lead to a federal shutdown. Global markets are closely awaiting.
Debt ceiling legislation provides the federal government with funding until December 3 and suspends the application of the current federal government’s legal debt limit until next December. If the bill is overturned by the end of the fiscal year on the 30th of this month, some federal government public health programs will be suspended beyond midnight on 1 October. Administrative activities like airport security checks and the operation of national parks will also be affected.
The real question is whether there will be a national default: In the event that the government exceeds the law’s debt limit, government bonds cannot be issued. U.S. federal debt is currently $28 trillion, exceeding the legal limit of $22 trillion.
Experts fear that an unprecedented national default will become a reality when the cash reserves run out, probably between 15 October and 4 November. In the event Congress is unable to reach an agreement on the debt ceiling by then, the US is likely to default on its debt.
US media reports note that the shutdown prevention and debt ceiling bill is closely tied to other budget bills under the Biden administration.
While the Democratic Party plans to build $1 trillion in infrastructure and $3.5 trillion in education and welfare, the Republican Party opposes the larger spending plan. An agreement cannot be reached.
The United States’ credit rating was downgraded by the international rating agency Standard & Poor’s (S&P) in 2011, as Congress continued to delay the debt ceiling negotiations. This shocked the global market at the time.
Journal article reports that US authorities are preparing for possible delays in Congress negotiations. In the event of national default, the Federal Reserve may buy the defaulted Treasury bonds directly and take steps to stabilize the market.