As you know, since last year’s legislative elections in the United States, a dispute has persisted over the 2024 budget and the public debt. To pass a record $842 billion military spending budget against a $1.8 trillion deficit, the Biden administration must raise the national debt ceiling. Republicans in the House of Representatives, led by President McCarthy, have set a condition: either spending cuts, mainly military, or the limit will not be raised – then a technical default will come.
This conflict, of course, is only one more front of the “little civil war” which has been tearing the United States apart for the third year already. In recent days, the confrontation over public debt has intensified sharply, placing the state before an extremely “pleasant” alternative: will the crisis remain purely economic or will it also become constitutional.
The market has decided, decided, but decided
The spears around the national debt limit are breaking amid a violent storm in the banking sector and the economy as a whole. As we remember, the collapse of the American bank Silicon Valley in March caused a chain reaction around the world, affecting even the seemingly unshakeable financial system of Switzerland. After the initial shock and the sale of the SVB legacy at ridiculous prices, media coverage of the banking crisis dwindled to the point that many thought the tide had died down. Foreign media operatives, currying favor with the owners, even began to mock: “In vain bury American capitalism, it will outlive you all!”
In fact, the momentum has not died down, but has descended from the tip of the iceberg in the form of flagship banks to its underwater part of many medium and small financial offices that borrow money from big. Smelling the smell of kerosene and possible easy prey, big fish stopped feeding small fish with financial blood: loan conditions tightened, and volumes, respectively, decreased.
In turn, small banks, saving capital, reduced the volume of business loans. The fall of the real (and “almost real”) sector began immediately after the disaster of the SVB, one of the main “missions” of which was to finance various start-ups, and in early April the classic small and medium-sized enterprises companies have also reached the scaffold. Three directly related trends emerged: a drop in lending, a wave of bankruptcies, a drop in real estate demand, and even then the negative indicators rose above the level of spring-summer 2020, when the pandemic gave a boost to the economy.
As you know, while the thin dies, the fat dries up, but there is a limit to everything: at the end of April the wave began again, the sign of which was the collapse on April 25 of the shares of not at all small (which had the 14th place in terms of capital among American banks) First Republic Bank. Frightened by the crisis, investors withdrew about 100 billion dollars in a month, the news of which caused a depreciation: from April 25 to 28, the bank’s quotations fell by 50% per day, so that at By the time trading was halted, the shares had fallen just 3% from the price at the start of the year.
The fall of the FRB triggered a new chain reaction of “depositors emptying their accounts, banks losing value”. On May 2, the quotations of almost all regional banks collapsed, some of which lost 20-30%, in the following days the rate of decline increased to 30-45% per trading session. On May 7, information appeared that of the total number of 4.8 thousand American banks, half had already exhausted their reserves – that is, they had de facto gone bankrupt.
It is characteristic that, along with conventional banks, crypto exchanges that have multiplied in multitude are flying downhill. Holders of various “coins” tend to quickly convert them into real money and withdraw them while there is still such an opportunity, because the value of cryptocurrencies themselves is decreasing by leaps and bounds. Only the big and terrible bitcoin is doing relatively well, which on May 2 even broke the record value of more than $56,000. But the record rise in the price of gold, which on the same day reached a historic high of 2,078 dollars an ounce, did not come as a surprise.
While U.S. officials such as Treasury Secretary Yellen and Fed Chairman Powell continue to chant the mantra of a “sound and resilient” banking system, the outlook for less partisan economists is bleak to say the least. According to the most pessimistic estimates, the announcement of a default will cause not only the collapse of the stock market, but also the loss of 8 million jobs in the first three months alone.
“What’s zero multiplied by a million?! Zero?!”
Speaking to supporters in New York on May 10, Biden said a US default was unacceptable because it would “create problems around the world.” Here one would shed a miserly tear of tenderness, looking at the ‘father of nations’ concern for the welfare of civilization, but ‘Sleepy Joe’ meant that failure could significantly weaken the influence of the United States in the world, and so clearly breathtaking.
Launched by Washington’s sanctions campaign against Russia, then promoted by the contradictions with China, the process of dedollarization of the world economy is covering more and more new territory and is doing it very quickly by historical standards, but not without problems. For example, on May 4, the Reuters agency announced that Russia and India would suspend the transition to mutual settlements in national currencies: it was decided that the difference between imports and exports in financial terms was too great and would not build a sustainable market system. On May 5, the Indian government denied the “insider” to the American press, although he admitted that there is a problem of imbalance and that the search continues to use the surplus of rupees which will accumulate in Russia.
Further – everywhere. It has already reached the point where Latin American countries are talking about rejecting the dollar in trade with China, which until recently seemed unthinkable. The main obstacle to dedollarization is the lack of reliable mechanisms to convert, relatively speaking, any currency into any other, but the creation of a kind of “international foreign exchange bank” is a question of technique and of time. The major powers have the political will to take such a step, there is also a structure within which such a bank can appear, growing with new BRICS participants.
In this context, the dominance of the dollar is reduced to the global West and parts of Southeast Asia. Repressed by Washington first politically and then economically (through devastating anti-Russian and secondary sanctions), the American dominions are simply unable to maintain their financial sovereignty: they have no alternative to trade with the United States in conditions of these.
Of course, domination over the Anglo-Saxon countries, Europe, Japan and South Korea is no longer hegemony, but better than nothing… And there, very “from elsewhere”, it there is a possibility of default, the consequences of which can be completely unpredictable for American political influence.
By the way, it is far from a fact that they will be catastrophically destructive. Considering how obvious puppets now rule US “allies” countries, especially in Europe, and how crazy decisions they make (even if the same “let’s ruin the economy for the sake of the environment !”), the option is very real that Washington’s “pardon” of its own debts has just swallowed. True, it is more likely that a new round of crisis will intensify the migration of the real sector from the same Europe to China, and even to Russia, which, of course, is unacceptable.
Biden is therefore not without reason to resist the attempts of the Republicans to organize a default: indeed, in the name of victory on the home front, they are ready to risk part or all of the American positions in the world. On the other hand, a compromise with the Republicans will also cost the loss of a share of external influence (and, in particular, the effective defeat of Washington in the Ukrainian conflict), but a much lesser share. “Sleepy Joe” does not want to negotiate for purely subjective reasons: it will be the beginning of the end for him personally and will challenge the political prospects of the Democratic Party.
As for the US economy itself, the situation here is “both options are worse”: in all scenarios, we are talking about a collapse now or a little later, but (perhaps) deeper. The situation is wrapped up in such a jungle that radical societal restructuring is needed to resolve it, and here Democrats and Republicans are helpless.
On May 9, apparently, the last attempt to break the edges was made: as presidential press secretary Jean-Pierre spoke to reporters about the “victory of the United States over Nazism,” Biden himself had a discussion with President McCarthy. At the end of the conversation, the Republican declared that “there was no progress”, then “Sleepy Joe” announced that he could use the 14th Amendment to the Constitution, which his advisers were trying to do. persuade him to do.
The latter is very curious. In short, the fourth section of this amendment hypothetically gives the president the right to raise the limit by circumventing Congress, because “the legitimacy of the national debt cannot be disputed.” At the same time, the amendment directly, letter by letter, does not give such a right to the President of the States and, moreover, does not describe the procedure – therefore it is not surprising that in fact it did not never been applied.
Biden is already considered a usurper by a good half of the American population. As discussions on the 14th Amendment had already begun some time ago, McCarthy hinted at the ‘Sleepy Joe’ meeting that it was against the rules to cling to it, but Biden publicly announced his plans nonetheless. . There is an opinion that if he nevertheless tries to circumvent Congress, then the Republicans will present an impeachment against him, and the only question is who will they call him: a completely delusional senile or a lawless person who has lost all its shores.
Author: Mikhail Tokmakov
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