Due to disagreement within American politics, another lockdown – this time bufgetary – threatens later this year. The Democratic and Republican Party are arguing over an increase in the maximum amount of debt the government can incur. If the parties do not reach agreement within a few weeks, public services may have to close.
The United States has been in a state of enormous debt for years. It is currently 28.4 trillion dollars or 28.400 billion dollars. However, the US has a maximum amount of debt that the government can incur. That maximum is 28.5 trillion dollars (almost 24.1 trillion euros) and that point is almost reached. Democratic president Joe Biden and his party want to raise that ceiling. This should allow the president to implement his plans in areas such as climate, education and infrastructure. This is trillions of dollars.
However, the other major party in the US, the Republican Party, does not want to help raise the debt ceiling. They see nothing in Biden’s plans. As prominent Republican Mitch McConnell said on Thursday, ” if the Democrats want to continue this irresponsible spending without our input, they will have to do so without our help.”
The Democrats can make the raise without the Republicans. They have a majority in both the Senate and the House of Representatives (the American counterparts of the first and Second Chamber). But that majority is minimal and it is not 100% certain that all Democrats will agree to the increase in the debt ceiling. In addition, the Democrats prefer to introduce the measure with the support of the Republicans.
The Democrats point out that the Republicans are partly to blame for the high public debt. This is because the previous-Republican-president Donald Trump has lowered taxes. As a result, less money went into the Treasury and the government had to borrow extra money. In addition, the Democrats stress that they did participate in a temporary suspension of the debt ceiling when Trump was still president in 2019. This suspension expired at the end of last month.
If there is no agreement, the US government will have to cut spending. This means that less important public services close down or have to go crazy with fewer staff. This could include border guards, prison staff and Coast Guard staff, but also space agency staff or nature park staff. Moreover, the measure is limited to public services and is therefore different from the lockdowns introduced because of the pandemic, where, for example, shops and restaurants had to temporarily close their doors.
In the last ten years alone, public services have been closed three times because of disagreement over public debt. For the last time this happened in the winter of 2018/2019. This closure lasted five weeks and was the longest in history. Many hundreds of thousands of civil servants were left unpaid at home. The cost of the measure is estimated at $ 11 billion. The aforementioned suspension of the debt ceiling put an end to this.
The squabbling over debts brings with it another problem. At the moment, the US government is considered very creditworthy. This allows the US to borrow relatively cheap money. This creditworthiness may be compromised by the disagreement, which makes borrowing money more expensive. According to some market experts, this would be a tragedy for the American economy. So it’s not that far yet. The parties still have a few weeks to reach an agreement. Whether or not that will work is questionable. Both Democrats and Republicans seem to be holding out for the time being.