The United States has reached the federal debt ceiling of $31.4 trillion. The Ministry of Finance has now initiated measures so that the government can meet all the expenditures that have already been identified by June. Congress has until June to raise the cap. But the Republican right threatens to derail this rise. In such a situation, the United States will become insolvent. Felix Oberholzer-G shows what this could mean for the world.
Swiss Felix Oberholzer G is Professor of Corporate Strategy at Harvard University near Boston, USA.
SRF News: What does bankruptcy of the world’s largest economy mean?
Felix Oberholzer-G: It would be a disaster for the US economy, but also for the entire international financial system. The political pressure to prevent this would be enormous. It’s not about whether you want to incur extra expenses. These are all government expenditures that have already been identified. The only question now is: Can the government actually deliver what it promised?
Why does the US have such a debt ceiling structure?
Honestly, this is a bit stupid because it is about the financial spending that has already been set. The idea was that this would slow the growth of government spending. The US debt mountain now stands at $31 trillion. This was about six times more than it was 20 years ago.
Oberholzer-Gee: These classes led to a mountain of debt
- The wars in Iraq, Afghanistan and Syria
- Republicans and Democrats cut taxes
- The financial crisis of 2008/2009
- Latest covid measures
So Congress approved the spending, with this ceiling irreversible. Is that just how it is?
indeed it is. The US budget is about $6 trillion. Revenue is just under 5 trillion. You have to borrow an extra trillion to actually be able to pay approved expenses. It is not entirely clear how it should be shortened.
How is the budget weighed?
What characterizes the US budget is that about two-thirds of all spending is called mandatory expenses We are. and this is Social securityincluding health insurance for older Americans. Politically, it is almost unreasonable to decide not to pay that much anymore. These versions are incredibly popular. Neither Democrats nor Republicans want to do anything about it. A third of the budget is the so-called discretionary spending. And about half of them Armament expenditures. “Republicans really don’t have an appetite to cut this spending,” Oberholzer-Gee explains.
Politics in the United States is hugely polarizing. Isn’t this debt limit becoming an increased risk?
no I do not think so. And for two reasons. If the debt ceiling is not actually raised, this will have major economic consequences. You see a lot of political theater, but if it got really costly, it would be an absolute political disaster, even for Republicans; For example, if you can no longer pay the Veterans of Wars benefit or if AHV payments are canceled.
Many economists now believe that debt is much less bad than it was once thought.
Second, many economists now believe that debt, especially when government spending is prudently invested, is much less bad than once thought. Smart investments can have returns that are greater than what they cost the taxpayer.
Is it time to get rid of that debt ceiling?
The debt ceiling is an important symbolic feature. Both sides can say that they handle taxpayers’ money carefully, and that they carefully consider what makes sense and what doesn’t.
We will experience this theater again and again, even if it has not changed much in reality and truth.
Right now, many American voters are disillusioned with politics. Confidence in Congress runs deep. It would be the wrong time to do something very symbolic now. That is why we will experience this theater again and again, even if in fact and the truth has not changed much, in fact, and the truth is not particularly important.
The conversation was conducted by Simon Holliger.
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