by Xin Ping
The bill is signed — Biden won.
For the 103rd time since the end of World War II, the United States Congress has adjusted the debt ceiling that limits government borrowing. Instead of raising the cap, Congress simply suspended it this time, meaning that the U.S. government for now could borrow as much as it wanted. The scale of U.S. debt will continue to expand beyond the current limit of $31.46 trillion, i.e., 23.6% of the GDP of 2022, and the money owed by the U.S. government to other countries will continue to grow.
People can’t help but wonder, when will the U.S. pay back the money? When will it stop increasing its debt? Probably never. Why? Here is the answer:
The U.S. government has borrowed heavily since the 1980s and converted itself from a net creditor country to a net debtor country in 1985. Its debt scale kept growing because the government spent much more than it earned every year. Its continuous expansion of military expenditures, the wars in Iraq, Syria, Afghanistan, etc., and the large sums of money to support Ukraine in the conflict with Russia all contributed to this. In order to make up for the widening fiscal deficit, the U.S. government has to continuously issue bonds and borrow from other countries, institutions and individuals. Borrowing new money to repay old debts has been the White House's fiscal model for decades.
But no one on Capitol Hill seems to care about the ever-rising debt level of the U.S. government, and no one, neither the Republicans nor the Democrats, is willing to take responsibility for a debt default. Worse still, the debt ceiling system has descended into a bargaining chip in the intensified party struggle and political polarization, which not only aggravated the governance failure in the U.S., but also put the global financial system under great threat.
For the Americans, each debate on the debt ceiling between the legislative branch and the executive branch means a potential modification in the budgetary priorities. In most cases, the budget entries deleted or squeezed were planned expenditures on projects of public well-being, such as the rescue fund for the poor and vulnerable greatly affected by the COVID-19 pandemic, a latest example of what is to be sacrificed. The powerful lobby groups for the U.S. military-industrial complex certainly will not allow any decrease in defence or military-related spending.
For the vast number of countries holding U.S. bonds, a debt ceiling, even though an ever-rising one, means a certain kind of constraint on the U.S. ever-expanding desire to borrow more, and might provide a certain amount of assurance for U.S. repayment. But with the ceiling suspended, chances are that the debt bubble could get bigger and bigger before it bursts in the end when the U.S. has to default.
In case of a default, U.S. domestic expenditure is not the only thing that will be affected. The U.S. dollar will depreciate quickly as it is no longer trusted, and the USD-based exchange rates, interest rates, stock prices and commodity prices will all become volatile. Global trade, investment and consumption will be suppressed and global economic growth will face serious downside risks. In short, the U.S. debt problem is undoubtedly the sword of Damocles hanging over the world economy, which could drag the global financial system into the abyss of systemic collapse someday.
More importantly, the repeated partisan gimmick on the debt ceiling issue has already reduced the world’s confidence in the willingness and capability of the U.S. to repay its debts and fulfill its responsibility as a global player. What comes with this is an ever-growing doubt in the U.S. dollar being the dominating reserve currency. From the beginning of this year, more than a dozen countries have sold their U.S. treasury bonds. This might serve as proof of the fading credibility of the U.S. dollar, and an irreversible process might have only just begun.
(The author is a commentator on international affairs, writing regularly for Xinhua News, Global Times, China Daily, CGTN, etc.,who can be reached at xinping604@gmail.com)
