US government pockets are almost empty
The US government is running out of cash and needs to borrow more so it can pay its bills due after June 5. That’s a problem for everyone around the world.
President Joe Biden, a Democrat, is struggling to get support from Republicans in Congress in order to approve taking on more debt.
Negotiations about raising debt is normal in American politics. These ongoing discussions, though, are different than previously because polarization between Democrats and Republicans has increased in recent years.
That’s raised the risk that the US government won’t be able to take on more debt in time to pay back old loans and due interest rates. Not paying what’s due is called to default.
The US has never defaulted on its debt, which is one huge reason why lending money to the American government has long been seen as the least-risky investment on Earth.
If the US does in fact default in June, the whole world will take an economic hit.
One reason for that is that governments worldwide, pension funds and even private citizens have lent money to the US in the form of government bonds, aka treasuries. Those bonds will lose value if a default happens.
Another consequence is that interest rates worldwide will increase to reflect a world with more financial risk since the world’s safest investment would no longer be seen as a safe bet. That would make stuff more expensive.
Biden and McCarthy hold debt ceiling talks but no deal yet as deadline looms (The Guardian)
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