what did biden say
During the G7 summit in Hiroshima, Japan, US President Joe Biden asked journalists to “keep quiet” as they began competing to ask him questions about a possible default.
While the American president was speaking with Australian Prime Minister Anthony Albanese, members of the media began to loudly ask him to comment on the situation with the United States debt ceiling. “Calm down, okay? Thank you,” Biden said as reporters began to interrupt.
The president used the American idiom “shut up”, a softer version of the established “shut up” – “shut up” expression. It is often used to calm screaming children. Other options for turning the turnover are “keep quiet”, “keep quiet”, “keep calm”.
Biden also tried to answer some questions about a possible default. He said he was absolutely calm about this and had negotiated several rounds with Republican Party representatives to increase the borrowing limit. According to the President of the United States, if the initial negotiations did not bring any significant results, the subsequent negotiations had a positive effect.
“I still believe we can avoid default and do something right,” Biden said.
What Happens to the U.S. National Debt?
The United States hit the $31.4 trillion debt ceiling on January 19 this year, and the U.S. Treasury prompted Congress to notify Congress of the need for “extraordinary” measures. Since the beginning of spring, department head Janet Yellen has repeatedly warned congressmen that the money in the treasury will run out by June 1, 2023.
This situation developed because Republican Party members in Congress did not allow the maximum increase in the public debt from January 2023. At the same time, America’s budget is running short and in critical need of new borrowing. The United States has no problem attracting new creditors – their government bonds are highly valued in the international market.
Republicans are proposing to raise the national debt ceiling by $1.5 trillion. But in return, they demand a $4.5 trillion reduction in budget spending. The corresponding bill was barely introduced to Congress by the House of Representatives, as Democratic Party representatives voted against the spending cuts.
Democrats, including Yellen, want to raise the borrowing limit, but unconditionally. Biden backs them, too: He has expressed his opposition to any budgetary cuts and vowed to veto a project involving cuts in government spending.
At the same time, the president said the default was “not an option”. According to the president, in this case, the US economy will enter recession and international reputation will be seriously damaged.
What happens in case of default?
Such a large public debt (and the United States has the world’s largest in absolute terms) does not indicate a problem with the economy. The debt of the US government has been increasing since 2001. But over time its maintenance becomes too expensive for the treasury. For example, in 2022, payments to US bondholders totaled $475 billion – more than 8% of the budget. According to the forecasts of financiers, this amount may increase to 700 billion dollars in 2023.
If the opposition parties do not agree, the American budget will not have the funds to pay civil servants pensions and salaries, benefits and health insurance. In addition, the Treasury will not be able to pay coupons to US government bond holders and will not be able to use paper at face value on time. This means default.
Analysts note that even in the worst-case scenario, America’s default will be technical – when the state has money to pay creditors, but there are difficulties in transferring them. Moody’s Analytics wrote earlier in the year that the US default would have macroeconomic consequences comparable to the 2008 crisis. In addition, the demand for raw materials will start to decrease and a “chain reaction” will occur with the debt obligations of other countries.
As Democrats and Republicans argue, the Treasury is forced to resort to urgent measures: it suspends contributions to state pension funds and covers expenses from account balances and current tax revenues (which was lower than estimated in the spring of 2023). The New York Times reported in late April that about $300 billion remained on the Treasury’s balance sheet.