$31.4 trillion in debt
USA is threatened with insolvency – these are the consequences
The US Treasury Secretary warns that the United States won’t be able to pay its bills in just a few days. What does this mean? Blick answers the most important questions.
1/5
US Treasury Secretary Janet Yellen warns of a default.
Martin SchmidtEditor Economics
The number is almost unbelievable: $31,417,200,000,000! That’s how high the mountain of debt in the USA is – and it’s growing by the second. It has been 22 years since the USA last reported a positive state budget. US Treasury Secretary Janet Yellen (76) expects the US to hit its debt ceiling on January 19th.
Yellen therefore asked the US Congress last Friday to raise the debt limit or to suspend it altogether. Otherwise, the world’s largest economy is threatened with insolvency.
What would be the consequences of a default for the US population?
Then the US government would no longer be able to pay its bills and would have to shut down some of its operations. This would result in unpaid vacation for employees. Families would have to get by without child benefit. Tens of millions of retirees would lose their state pension, as would the unemployed and veterans. The soldiers were not paid either.
How badly would the US economy be affected?
The US state is an important customer for companies in the country. In the event of insolvency, the government would no longer be able to pay the outstanding invoices from the companies. But the consequences would be far more serious: according to the rating agency Moody’s, the US economy could fall by four percent and unemployment could rise to nine percent. This puts millions of jobs at risk. Households would lose up to $15 trillion in wealth.
What would that mean for Switzerland and the rest of the world?
A major slump in the largest economy would have serious consequences for the entire global economy – and thus also for the demand for Swiss goods. According to US Treasury Secretary Janet Yellen, a default would do “irreparable damage” to global financial stability. The stock market would most likely take a nosedive. When the country faced default in early 2019, the US stock market plunged 20 percent. In addition, bankruptcy would hit banks around the world hard.
Is the US threatened with national bankruptcy in the event of an insolvency?
no Markets firmly believe the default would be temporary and Congress will eventually raise the debt ceiling.
Why is Congress waiting so long?
Both chambers, the Senate and the House of Representatives, must give their consent to raise the debt limit. With their blocking attitude, the Republicans are currently trying to force President Joe Biden (80) to cut his state budget.
Does the high level of US debt pose a threat?
The US national debt is currently 125 percent of the gross domestic product and is thus even higher than in the heavily indebted countries of France (113 percent), Spain (116) and Portugal (123). However, thanks to historically strong economic growth, the high level of US debt is rarely perceived as a real problem. In addition, the US can use the printing press to finance its central bank debt. However, rising interest rates are causing more and more money to flow from the household into interest payments. Should the US actually become temporarily insolvent, interest rates on US promissory notes are likely to rise significantly.
What are the chances that the US will slide into bankruptcy?
So far, Congress has never let it go that far. Instead, he has already raised the debt limit 80 times, lowered it five times, and suspended it five times. The chance of bankruptcy is therefore extremely low. However, there have already been several shutdowns. This means that the government could no longer pay part of its bills. Most recently, the Democrats blocked at the end of 2018 and beginning of 2019 under then-President Donald Trump (76) because they were against his building a wall with Mexico.