A crisis could occur if the United States fails to meet its payment obligations. Lawmakers must figure out ways to avoid catastrophe before June 1st. 

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The possibility of a first-ever US default is causing alarm bells to ring, with uncertainty over when the government would no longer be able to pay its bills. Despite efforts, President Joe Biden and his Republican opponents have failed to find an agreement to raise the US debt limit and avoid default payment.

The problem lies in the understanding that the US federal government would not be able to pay for its accumulated expenses. Janet L. Yellen, Secretary of the Treasury, stated that, if the government cannot borrow more money, its ability to function could be maintained until June 1st, based on tax revenue and spending, which can vary significantly on a weekly basis. However, the deadline is subject to change depending on these fluctuations.

In a discussion about the possible consequences, Julie Kozack, Director of Communications for the IMF, warned that, in their estimation, there would be severe repercussions for the US and for the the global economy due to a US debt default, as reported by AFP. A default could unleash drastic consequences, including a recession, and could likely cause global financial contagion. The consequences of default could worsen, leading to a halt in federal payments, resulting in economic damage. In turn, this could have a negative impact on the stock market and cause further decline in the economy. Wally Adeyemo, Deputy Secretary of the Treasury explained on CNN, “If Congress failed to raise the debt limit by the time of default, we would go into recession, and it’d be catastrophic.”

Possible solutions to this crisis include raising the debt ceiling, which currently stands at USD 31.4 trillion, or 117% of GDP.  It would be the simplest answer, but political negotiations must come to a conclusion before the deadline is reached. This sets the stage for a game of brinkmanship, in which the Republican-controlled House of Representatives attempts to obtain concessions from Biden.

Republicans and Democrats remain sharply divided over the debt ceiling, with Republicans in Congress insisting on President Joe Biden’s administration’s agreement to significant budget cuts in exchange for support to lift the limit before the country runs out of money to pay its existing bills. Biden stated that he wants a “clean” hike of the debt ceiling, but Republicans are insisting that any extension of the country’s borrowing authority comes with substantial curbs on spending.

Nevertheless, US President Joe Biden has been considering the “14th Amendment” option to avert a debt ceiling crisis as the deadline to resolve an impasse on lifting the borrowing limit swiftly approaches. However, failing to meet spending obligations enacted by Congress could be a worse violation, giving the Treasury some justification to borrow more and continue paying its bills.

As the deadline approaches, the fate of the nation’s economy hangs in the balance. The stakes are high, and both parties must come to the negotiation table to find a solution before it’s too late.