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Will the US default on its debt? Ask GZERO World's guests
It's the question swirling around Washington this week (and last week, and the week before, etc, etc). It's of concern to US allies and of great interest to US adversaries: Will the United States government default on its debt for the first time in history? Depending on the day of the week, or the hour of the day, you may get a different answer from politicians and pundits alike.
On GZERO World with Ian Bremmer, though, guests from the past few months, including Utah Senator Mitt Romney, World Bank Group President David Malpass, former New Jersey Governor Chris Christie, and US Transportation Secretary Pete Buttigieg, have struck a common chord: it won't happen, but if it does, we're in for a hurting. Catch GZERO World with Ian Bremmer on public television stations nationwide. Check local listings.
- US debt default would be "destabilizing," says World Bank's David Malpass ›
- Sen. Mitt Romney on DC dysfunction, Russian attacks, and banning TikTok ›
- Pete Buttigieg explains: How the debt limit impacts transportation ›
- Chris Christie weighs in on US debt limit fight ›
- US debt limit: default unlikely, dysfunction probable ›
Chris Christie weighs in on US debt limit fight
Unless lawmakers in Washington can work out a deal to raise the debt ceiling, there will be “serious consequences for our economy,” says rumored GOP presidential candidate Chris Christie. The former governor of New Jersey spoke with Ian Bremmer on GZERO World to talk about the 2024 presidential race and the issues currently facing the Republican Party, including the House Speaker Kevin McCarthy’s current fight with the White House to raise the debt ceiling in exchange for deep cuts in federal spending.
The stakes are extremely high: If McCarthy and President Biden can’t agree on a deal, the federal government is at risk of defaulting on its debts, which would cause chaos in global financial markets. McCarthy and Biden met on May 9 to discuss the debt limit, but walked away without any real progress, aside from agreeing to meet again later in the week. Still, Governor Christie is confident both sides will eventually come to the bargaining table because the risk of not raising the federal debt is just too high.
Governor Christie points to the shakiness of the post-pandemic economy, including rising inflation and the banking crisis, as reasons why neither side will want to add to the current market instability. Also, he makes the argument that government spending rose significantly during both the Trump and Biden administrations, so there is some room for a compromise in both camps.
Christie is confident that, despite the current impasse, Biden and McCarthy will work out an eleventh-hour deal, “I think there will be a moment where they both say, ‘All right, I'm going to give you a little bit of what you need. I'm going to give you a little cover for what you need and we're going to move on.'"
Watch the full interview on the upcoming episode of GZERO World with Ian Bremmer, airing on US public television nationwide. Check local listings.
- Christie: US should keep leading Ukraine aid - GZERO Media ›
- Pete Buttigieg explains: How the debt limit impacts transportation - GZERO Media ›
- US debt default would be "destabilizing," says World Bank's David Malpass - GZERO Media ›
- Will the US default on its debt? Ask GZERO World's guests - GZERO Media ›
- Republican identity crisis: Chris Christie vs. Donald Trump - GZERO Media ›
- Chris Christie interview: The truth about the 2024 GOP primary race - GZERO Media ›
- US government shutdown: No end in sight - GZERO Media ›
Explaining the long history of US debt (& which other countries are saddled with debt)
Sovereign debt is, simply put, the money a country owes to its creditors around the world. Ian Bremmer explains a few more fun facts about debt on GZERO World.
Good old Ben Franklin once quipped, “Rather go to bed without dinner than to rise in debt.” Well, America didn’t exactly heed that advice, because never in its history did the US hit the hay hungry. In fact, the nation ended the Revolutionary War years about $75 million in debt.
US debt hit the billions by the time the Civil War was over, and was at $22 billion after World War One.
Nowadays, we’re talking trillions with a “T” of course, and public debt was at 115% of GDP last year in America. You don’t have to be an accountant to know…there’s a fair amount of red ink on that balance sheet.
America isn’t alone on Debtors Island. Based on the International Monetary Fund’s 2021 data on the top six global economies in 2021, Japan leads the pack with debt standing at 221 percent of their GDP, followed by Italy, and then the U.S-of A. The UK comes in 4th, followed by France and Germany. China is probably somewhere high in that mix, but the IMF can’t say for sure because, unsurprisingly, Beijing isn’t too forthcoming with their data.
And if the COVID pandemic taught us anything, it’s that when China pretends a problem doesn’t exist, everything works out just fine.
Watch the GZERO World episode: Sen. Mitt Romney on DC dysfunction, Russian attacks, and banning TikTok
- US debt hits record: Should you worry? ›
- Who will cave on raising US debt ceiling (again?) ›
- The state of the global economy is … not good ›
- Welcome to the global economy in 2023 ›
- Podcast: Fix the global debt crisis before it's too late, warns World Bank's David Malpass - GZERO Media ›
- US government shutdown: No end in sight - GZERO Media ›
GOP partisanship could trigger first-ever US default
Jon Lieber, head of Eurasia Group's coverage of political and policy developments in Washington, DC shares his perspective on US politics:
What does it mean that the US has hit its borrowing limit?
Well, the US this week hit its statutorily created debt limit, meaning that because of all the money that it borrowed during the course of the pandemic and the fact that it's borrowing hundreds of billions of dollars a year spending more than it takes in tax revenues, it hit its $31.5 trillion debt limit, which means that the US is now in a situation that it cannot issue new debt until Congress acts to raise the debt limit. However, Congress does not want to raise the debt limit, and there are a couple episodes during 2011 and 2013 where Congress came very, very close to the date where it would've potentially defaulted for the first time ever by not making payments to creditors.
Treasury Secretary Janet Yellen has set that due to what they call extraordinary measures, a couple of tricks, financial tricks that they use in order to extend the time before the US actually hits its borrowing limit, it's likely they can continue to finance the cost of running the government until at least early June, but after that point, it's anyone's guess when the US will default creating potential market chaos for this first ever event. So this is going to be a major storyline for US politics this year as President Biden attempts to negotiate this deal with Speaker Kevin McCarthy and a whole bunch of new freshman members of Congress, Republicans who don't want to vote for the debt limit and could be a potential stumbling block in a potentially weakening US economy later this year. Thanks for watching. This has been US politics in a little over 60 seconds.
Does China's rise have to mean America's decline?
The US and China are as wary of each other as they've ever been. But the Chinese think they are on the rise, while America is declining.
On this episode of GZERO World, Ian Bremmer talks to billionaire Ray Dalio, head of the world's largest hedge fund, who thinks rising US debt, a widening wealth gap among Americans, and the meteoric rise of China all play into Beijing's plans to overtake the US as a global superpower.
For instance, Dalio believes that too much national and household debt — combined with rising inflation — is a ticking time bomb that'll surely hurt the US dollar, which in the near future might lose its status as the global reserve status to the Chinese yuan.
And then there's dysfunctional US politics, which for Dalio have a lot to do with rising inequality — caused in part by too much cheap money in the hands of those who already have a lot of it.
Does this mean investors should bet on China over the US? America has a better system, he says, but the Chinese have become a much better competitor in many areas.
Also, what's up with crypto these days?
Will the US debt ceiling debate cause a government shutdown?
Jon Lieber, head of Eurasia Group's coverage of political and policy developments in Washington, shares insights on US politics:
Is a US government shutdown coming?
Hard to say. Republicans and Democrats generally are in agreement about the need to fund the government. And they generally agree at what level the government should be funded. And they generally agree about the need for supplemental money for Afghanistan and some natural disasters, coming out of hurricanes this season and wildfires. What they're not in agreement about is the federal debt limit, which is the cap on US borrowing that the US hit in early August and needs to be extended by some time in October. Otherwise, the US will have a first-ever default. This would be a very bad outcome with cataclysmic results for the entire world economy.
But Republicans are saying, "Hey, you guys want to spend a bunch of money on $3.5 trillion. We are not going to help you. So you need to find the votes for this on your own." And the Democrats are saying, "This debt belongs to all of us and therefore we all need to vote to increase the debt ceiling." The government shutdown and the debt limits so far are linked. And as long as they remain linked, there will be a government shutdown. The issue has to be resolved by the end of the month. Otherwise, government functions shut down until they get a resolution.
Why is President Biden's economic plan hanging in the balance?
Well, the plan is hanging in the balance because the Democratic Party itself is divided over how much money should be spent by the federal government over the next 10 years. The progressives support spending up to $6 trillion. The conservative members of the party are being a little bit cagier about what they'd be for. Basically, the party's in agreement that they should do some form of expanded social spending, direct subsidies for childcare, for education, for healthcare, and a whole bunch of new physical infrastructure spending. But how much and how to pay for it are really dividing the party. And there's no clear solution right now. Probably they get there by the end of the year. Biden himself has not been super effective in mitigating the differences between the two wings of the party. And you've got a small number of moderate members, including most prominently Kyrsten Sinema from Arizona, and Joe Manchin from West Virginia, who are holding out on the spending parts of the agenda. But there's also a bunch of members in the House who are for tax increases. So this will take some time to work out. Ultimately, they probably rally around $2 or $2.5 trillion in spending, but maybe not until Thanksgiving or Christmas.