The U.S. is on the verge of default if Democrats and Republicans don't pull together. The consequences for the global economy would be severe. An overview.
Washington – Apocalyptic mood in Washington: The Treasury Department has been warning for days that it will soon run out of money. The minister in charge, Janet Yellen, even says that the state will run out of money from June 1. While some economists estimate that the money would last a few more weeks, everyone agrees on one thing: If the debt ceiling is not raised now, the US will slide into recession – and possibly drag the whole world into the abyss.
For many people in Germany, the problem seems complicated and distant at first glance. But the consequences of a U.S. default would spill over to us. The most important questions and answers on the topic:
What exactly is the debt dispute about?
In the U.S., the national debt is capped by a legal limit. This limit must be raised at irregular intervals by Congress. This has been done 102 times since the Second World War. In the case of different majorities in the chambers of Congress – the House of Representatives and the Senate – this often leads to political disputes. That's how it is now. The last time there was a fierce dispute and the payment case could be averted at the last minute was in 2011.
The relevant law specifies a specific maximum amount for US debt - a relatively rigid procedure that is not common in any other country in the world. The ceiling is currently $31.4 trillion. Because this cap has already been reached, the United States can only stay afloat with a few fiscal tricks - called "extraordinary measures" in technical jargon. In other words, the treasury is almost empty.
The U.S. Treasury says there will be no more money from June 1. Analysts at Goldman Sachs expect a default on June 8 or 9. Still others still see some breathing room until June 15th. But only if the state stops making certain payments in order to save money. That would be social benefits and health insurance – with catastrophic consequences for citizens.
"There will be no default," said Kevin McCarthy, Speaker of the U.S. House of Representatives. © Susan Walsh/AP/dpa
How would the default affect Germany and the world?
The United States is not only the largest economy in the world, but also the world's most important debtor. U.S. government bonds enjoy a first-class reputation internationally. As a financial investment, they are thus almost without competition. This is due in no small part to the sheer size of the US financial market. As a result, the American dollar enjoys the status of a de facto world reserve currency. In many commercial and financial transactions, it cannot be replaced, at least in the short term. If this system falters, there is a risk of serious economic upheaval.
However, it is difficult to predict exactly what the consequences would be, as it has never happened before. It's a doomsday scenario for which there is no comparable event. What is certain, however, is that the default would shake confidence in the dollar. The U.S. could slide into a recession that spreads like wildfire to the global economy.
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"Global financial markets and the economy would go off the rails, and even if a quick fix were found, Americans would likely be paying for this default for generations to come," Mark Zandi, chief economist at Moody's, summed it up in March.
How likely is a political agreement?
The past shows that politicians in the United States have always been able to pull themselves together at the last minute. But as long as there is no agreement in sight, the uncertainty can cause turbulence in the markets. Economists fear that the US is currently in an extremely precarious situation – and that a recession will become inevitable even if an agreement is reached. The longer the dispute drags on, the more likely it becomes.
Is there no other way to avert default?
Not really, unless Treasury Secretary Janet Yellen gets something out of her bag of tricks. As early as 2011, the minting of a "trillion-dollar coin" was discussed – which would end the debt crisis in one fell swoop. The idea is a bit insane, but it is sometimes seriously discussed: The Ministry of Finance is allowed to mint coins made of platinum at its own discretion. If the coin is minted, the US could use it to buy back its own debt.
With material from dpa
