After the US House of Representatives voted through a debt ceiling bill, international opinion commented on 1 June that “the ceasefire is temporary, but it is not over yet.” The bill suspends the debt limit until early 2025 and imposes limits on spending in fiscal years 2024 and 2025. This sounds like a relief to many. But, even if the bill is passed by the Senate and signed by the President, is the problem really resolved?
Currently, US government debt dominates the global bond market. Once the US debt defaults, it will be disastrous for the US and the world. Now, the solution offered by the US is this: First suspend the debt ceiling for two years. That is, the US government can continue to borrow temporarily without being bound by any limits until early 2025. This is the US equivalent of temporarily pressing the pause button on the “bomb” of debt default.
But, such a solution does nothing more than push back the contradiction and fundamentally does not solve the problem, on the contrary, it also contributes to the further accumulation of debt in America. Therefore, the “real worries” of the market have only just begun after the debt ceiling bill was passed.
For too long, America’s capricious debt-based development model has seriously eroded the credit of the US dollar. The US debt problem has become a “gray rhinoceros” phenomenon that could flare up at any time. People have to worry: can the money lent be recovered? On May 24, international rating agency Fitch announced that it had changed the outlook on the US sovereign credit rating to “negative”.
Meanwhile, political polarization in the US has also raised concerns in global markets. In short, the US debt crisis is the product of a vicious struggle between the US parties. Over the past few months, the two parties, the US Democratic Party and the Republican Party, have been engaged in a “tug of war” on the issue of the debt ceiling, dragging the issue to the last moment in order to gain the greatest political mileage.
As the world’s number one reserve currency and payment currency, the US dollar accounts for approximately 60% of international reserves and approximately 40% of international payments. However, this super privilege has been turned into a tool by the US to protect its interests. The US dollar, which was supposed to act as a “stabilizer” for global finance, has become a nightmare for other countries.
As the world’s largest economy, the current US key economic indicators continue to decline, the risk of recession has intensified and the banking industry is in turmoil, which has brought various uncertainties to the world. The US debt crisis, which has been raging for several months, has caused serious turmoil in the market. People have already deeply realized who is the biggest threat to the world’s economic security.
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