Seven Days to the Global Crisis

It’s the last full week of May, which means June is just around the corner and America is just days away from a full-fledged debt crisis. Lawmakers on Capitol Hill have extensively sought to reconsider the US government’s spending bill and avoid a re-do of the 2008 financial crisis. Negotiations so far have hit a stalemate with democrats signalling an inclination towards President Biden using his executive authority to raise the debt limit, which was crossed on the 19th of January. Republicans on the other hand are divided between making major cuts to social spending and veteran commitments and allowing the debt crisis to proceed-just to set a precedent with the face of the Biden Administration (under Democratic rule). The Treasury Secretary said early last week that the US would soon default on its payments, noting that a June 1st deadline is likely to be the accurate of most dates floated. The Treasury, as the mode of transactions, noted that the global economy could go into paralysis, “if Congress [does] not acted to raise or suspend the debt limit by early June, and potentially as early as June 1”. The US defaulting would mean disastrous for the US economy as well as the global economy. Many experts have warned of a fall in GDP almost immediately and a loss of 2 million jobs. Currently, the American jobs market is healthy with its highest numbers yet seen in Q1 2023. This comes in stark contrast to the rising interest rates by the fed and the trade-off considered by American consumers-who at the moment-are very confident about the sustainability of the US economy. For the American household, it would mean a delay in social security payments. It’s important to note that the Chinese or the Russians have never successfully averted the strength of the US economy. In a study by the National Committee to Preserve Social Security and Medicare, two-thirds of beneficiaries rely on Social Security and Medicare payments and about 40 per cent within that group rely on it as 90 per cent of their incomes. This would halt consumption in the economy altogether, regardless of consumer and producer confidence. For investors, it would mean a tenth of economic activity causing a third of their stock value. You’d see share prices dropping greatly. Over the past few days and weeks, markets are already signalling unoptimistic horizons, despite the White House and Speaker Kevin McCarthy’s negotiation team reassuring of a conclusive agreement. For the Global Economy, it would mean a tenth of global economic activity coming to a halt. Consumers in the US would stop spending altogether with a significant bar on imports and exports. This is mainly because the default would send out a message of dismay to the global community, in essence, that the US cannot pay its bills. The Dollar would surely see a major blow with more and more people betting on its viability than otherwise. “No corner of the Global Economy will be spared,” said Mark Zandi, Chief Economist at Moody’s. That’s because with more uncertainty and less investment, the world would be actively looking to restore the might of the dollar, something experts say is the face of the Global Economy. The talks continued into the G7 summit with President Biden cutting his meetings short to address the default and go toe-to-toe with Speaker McCarthy on fair ground. The Director of the Office of Management and Budget (OMB), Shalanda Young, addressed the debt ceiling head saying that it is at the end of the day Congress’ responsibility to solve the debt ceiling. The debt ceiling is the duty of Congress and has never been up for debate in past presidencies despite differing majorities in both Chambers and the White House. Now, politics has a huge part to play in all of this. President Trump said about the crisis, in a town hall with CNN this month, that the US defaulting under President Biden’s watch would somehow be favourable. The idea, for Republicans at least, is that the default would attach an unfavourable attraction towards President Biden and his campaign heading into the 2024 general election. If they can play on the matter enough without leaving nothing for them to have control over next November, they believe they have a chance of creating the same vengeance vote that had been orchestrated for Trump-for-Biden. The folks at the Treasury are carefully using every dollar of their funds to avoid the default from nearing as a default could mean a potential advantage to American adversaries who are waiting to jump on the opportunity to take over left by a weakening dollar. The dollar, of course, has been the main mode of transactions for over a decade, and it’s important to note that the Chinese or the Russians have never successfully averted the strength of the US economy, despite multiple efforts around the world, especially in the Middle East and Northern Africa. Nevertheless, this is an issue that must be dealt with on a bipartisan basis, because this is an issue that will inevitably be faced by all consumers everywhere. For sure, you’d see the gaps between rich and poor widen, given that the structure of the recession we could enter is that in which high inflation, high-interest rates, high economic uncertainty and a self-imposed default are common for most nations. The writer is a columnist and a linguistic activist.