US Debt Ceiling Crisis

All of below information is taken from publicly available sources and individual views have been presented in the below article. This Article does not represent any views from any of official channel and this article is for informative purpose for Finance student.


In this article we will present views on US debt ceiling crisis and its potential impact on the global economy. The United States is on the brink of an unprecedented risk of defaulting on its debt, which could have profound consequences worldwide.


What is Debt ceiling?

US Debt ceiling was created by Congress in 1917. The debt ceiling represents the maximum amount of money the US government can borrow to meet its financial obligations. However, the ongoing impasse between the Republican majority in the House of Representatives and the Biden administration has hindered any agreement. If the debt ceiling is not extended, the US government will be unable to borrow and pay its outstanding dues, creating a dire situation with far-reaching ramifications. In March 2023, the total national debt and the debt ceiling both stood at $31.4 trillion. The U.S. government has run a deficit averaging nearly $1 trillion every year since 2001, meaning it spends that much more money than it receives in taxes and other revenue. To make up the difference, it has to borrow to continue to finance payments that Congress has already authorized.

What if US defaults?

A US default would unleash catastrophic effects on the nation's economy. Moody's Analytics estimates that even a one-week breach of the debt limit would result in the loss of approximately 1.5 million jobs and plunge the country into a recession. Stock markets would become highly volatile, and if the default were to persist, it could wipe out USD 10 trillion in household wealth, cause borrowing rates to skyrocket, and push the unemployment rate from the current 3.4% to 8%.

What makes this crisis even more alarming is its potential to ignite a global economic downturn. As the world's primary reserve currency, the US dollar plays a pivotal role in international trade and financial markets. Should the United States default, economies across the globe would face significant challenges. Orders for goods from Chinese factories heavily reliant on US markets could vanish, Swiss investors holding US Treasuries would incur losses, and businesses in economically unstable countries may struggle due to a scarcity of dollars.

The repercussions extend beyond currency dynamics. At a time when the global economy is already grappling with numerous challenges such as rising inflation, escalating geopolitical tensions, and the tightening grip of authoritarian regimes, a US default would further undermine stability and raise questions about America's financial leadership.
As professionals engaged in the global business community, it is imperative that we closely monitor and understand the implications of the US debt ceiling crisis. The potential consequences are vast, necessitating active dialogue and advocacy for a swift resolution to mitigate the impact on the world economy.