What would happen if the United States ran out of money and couldn’t meet its financial obligations ? Many people wonder about this since the Biden administration cannot agree with Congress on raising the debt ceiling . The Secretary of the Treasury Janet Yellen has expressed concern that the US might experience a financial catastrophe on June 1 if the nation runs out of currency . But what exactly does this imply for underdeveloped nations?
So, What Is This “Debt Ceiling” That We Are Talking About?
The debt ceiling is a policy that limits the amount of money the government may borrow to pay for its debts . The issue is that governments usually spend more than their tax income so they have to attract foreign and domestic capitals via treasury bonds . On the other hand Congress usually increases the debt ceiling to not to default on the debts . Yet sometimes it is used as a political leverage .
The US government will be unable to pay its obligations after June 1 if Congress does not strike a deal . This will prevent the government from meeting its monthly obligations such as making pension, healthcare and salary payments to government employees and paying Treasury bills . That means that they could default on their debts and its repercussions for the nation and the globe would be dire .
The Consequences Would be Devastating for Developing Countries
In other words a default would be devastating . Like it or not The United States is the lifeblood of the international economy and if it stops pumping the whole world grinds to a halt . A worldwide economic downturn would follow a market meltdown and a currency collapse . That would be like going back in time to the worst of the 2008 financial crisis .
The IMF estimates that global economic growth would slow by 1.5% in 2023 if this disaster were to occur . The market would panic causing lenders to either charge higher interest rates or become more wary of giving money to the United States or other nations . The situation would be even worse for developing countries that rely on exports to the United States to service their massive debt loads . Government budget reductions, employment losses and a breakdown in international collaboration would all have an impact on many people around the world . This is a very severe problem with no easy answers .
If the United States were to default on its debt it would have catastrophic effects on the global economy and on developing nations . This is why Congress in the United States must agree to increase the debt limit before June 1.
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