The Urgency for the US to Solve its Debt Crisis

US government has a big problem that they have to solve before June 1st they cannot avoid this problem. They have to somehow solve it and that too before June 1st and what is that problem? It is related to the U.S economy. United States is going to default on its debt at the end of this month if the U.S government fails to reach a new agreement. What do I mean by all of this let me explain in the simplest way possible. We all know that every country in this world has National Debt also known as Public Debt.

“It is the total amount of money that a government owes to its creditors including individual institutions and foreign governments a country's national debt represents the accumulated borrowing over time to finance government expenditures that exceed revenue generated through taxes and other sources.”

So, every country in this world has some national debt but the United States of America has the highest national debt which is currently that is in 2023 is around $31.46 trillion. We can say that all the development that we see in United States is largely because of its debt because debt has played an important role in United States growth and development debt has been used by the US government to finance infrastructure projects fund Public Services support economic stimulus measures and invest in Education and Research and there are plenty of other things now this statement is true for every country it is not limited to United States but then this blog is about United States so I'm telling this in context of United States therefore, it is very important for any country to assess its policies with respect to development and debt because the fact of the matter is everybody wants to develop but then development comes with a cost a debt of a country is typically passed on to future Generations when a government incurs debt it essentially borrows money that will need to be repaid with interest over a specified period suppose if the debt is not fully repaid during the current generation's time the responsibility to repay the remaining debt falls on future Generations it is plain and simple, every country needs to develop at its own pace just looking at another country you cannot rush with your development idea if you study the economy of Japan it is a perfect case study that will tell you that Japan's desire for Rapid development and economic growth has played a significant role in its high national debt so now that you have understood United States has the highest national debt in the world now what happened is that this year in January the United States has reached its debt ceiling reaching the debt ceiling refers to a situation when a country's government has reached the maximum amount of debt it is legally allowed to borrow basically a debt ceiling is a limit set by legislation that determines the maximum level of debt a government can incur otherwise if there is no such legislation then the government of a country will not have any limit on borrowing and that can make the entire country go bankrupt similar to what is happening to Pakistan right now as you know every four years a newly elected government has the authority to govern United States of America and raise funds within a certain limit to implement its schemes and policies therefore the United States debt ceiling is a legislative limit that determines how much debt the U.S treasury Department May incur so this year on January 19th the Biden government has reached that debt ceiling in simple words the Biden government has spent more than what it has earned basically the government expenditure is more than the government earnings now suppose, if a government consistently spends more money than it generates in Revenue then it may need to borrow or cover the deficit now over time this accumulation of debt can approach or even breach the predetermined debt ceiling set by legislation now how did this happen if you look at the debt ceiling legislation it was introduced by the U.S Congress in 1917 that means in the past hundred years anyone who comes into power that is the Democratic party or the Republican party they have routinely increased the debt ceiling through Congress because whenever the U.S treasury Department could no longer pay the government bills Congress had to act quickly and increase the limit the United States debt has many times gone up faster than the debt ceiling therefore this clearly shows that the US government is constantly borrowing money with absolutely no regard for what it can possibly lead to then this year in Jan 2023 again the U.S national debt reached the debt ceiling

Debt Ceiling and Its Impact on U.S Economy

This time it was under the presidency of Joe Biden you have to go back to last year which is in 2022 when this Russia Ukraine conflict started and the United States government which is Joe Biden's government the Democratic party they were spending money like water giving Aid and military equipment to Ukraine almost $80 billion were spent on Ukraine (this is BBC's report) there are other reports that suggest till now the United States has allocated nearly $150 billion in support of Ukraine whatever may be the right figure but the point is this kind of excessive and unnecessary spending then printing money whenever they want and this way of rapidly reaching the debt ceiling limit will lead to increased borrowing costs for businesses and homeowners and that will lead to drop in consumer confidence that could shock the U.S financial market and tip the economy into recession and then ultimately if the U.S economy that is the US dollar goes into recession it will create havoc on Global Financial markets that is why many countries are promoting the de-dollarization.

Risk of Reaching Debt Ceiling             

Many countries are substituting the US dollar as the currency used for trading oil and other commodities the dominant role of the dollar in the global economy has given the United States massive power to influence other countries’ economies all this while it has given the U.S the power to impose sanctions as a tool to achieve foreign policy goals this is one reason for de-dollarization.

Secondly, the United States also has this bad habit of printing money and distributing money in the form of physical currency such as Bank notes as well as electronically through various mechanisms including open market operations and lending facilities, they use this strategy to manage the stability of the economy so even this is a reason of de-dollarization.

Third reason is now that we are seeing United States debt is increasing massively year by year and they are also reaching the debt ceiling limit frequently so there is a high chance that the US government will default on its debt payment and the U.S economy will dip into recession anytime and that will definitely affect the International Financial system the central banks of many countries are aware of the scenario therefore the smart think that any country's Central Bank can do is de-dollarize the economy as soon as possible so that by reducing reliance on the US dollar countries can better prepare themselves for potential financial crisis.

Urgency for U.S to Solve the Debt Crisis

now if you see Russian banks have started using the China-based cross-border interbank payment system for international payments and then China has also developed this second currency that is Renminbi in 2015 which offers cleaning and Settlement Services for participants in cross-border Yuan payments and trade and then if you see BRICS new development Bank it encourages trade and investment in National currencies by dispersing up to 50 percent of its loans in National currencies since 2015. After that Asian central banks have over 400 billion dollar of local currency swap lines and trade amongst themselves then in July 2022 The Reserve Bank of India unveiled a rupee settlement system for international trade by allowing special voice through account in designated Indian Banks it is a step towards internationalizing the rupee similarly the South African rand is used by several African countries then the Latin American countries are also moving towards greater inter-regional trade and then bilateral currency swaps among ASEAN countries with China Japan and South Korea is also increasing rapidly so steps like this are being taken by governments of different countries to move away and reduce dependence on the US dollar.

Closing Thoughts

this is the whole story and this is the reason why U.S President Joe Biden has canceled his visit to Australia for attending this year's QUAD meeting basically he has been forced to turn his attention to domestic politics because now his government has to form an agreement with the Republicans to prevent the United States government from defaulting on its debts at the end of this month well it is also a reminder for the United States that it is high time that they should stop interfering and worrying about what is happening in other countries in the world the United States should instead focus on domestic governance United States is a developed country that possesses Advanced infrastructure technological capabilities and a high standard of living for a significant portion of its population while accumulating debt for domestic development may be deemed justifiable but engaging in Regional politics of different regions in the world also requires Financial resource sources after all to be a leader of geopolitics you need money the country with most money has the power to influence the geopolitics of any region however this influential position comes with a price which is the potential risk of economic instability and currently United States is facing.