USA threatened with bankruptcy – these are the consequences

The number is almost unbelievable: $31,417.2 billion! That’s how high the mountain of debt in the US is – and it’s growing every second. It’s been 22 years since the US last reported a positive state budget. US Treasury Secretary Janet Yellen (76) expects the US to reach the debt ceiling on January 19th.

That’s why Yellen asked the US Congress last Friday to raise the debt limit or suspend it altogether. Otherwise, the world’s largest economy is threatened with bankruptcy.

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 cease some of its operations. This will result in unpaid vacation for employees. Families will have to live without child benefit. Like the unemployed and veterans, tens of millions of retirees will lose their state pension. Soldiers were not paid either.

How much will the US economy be affected by this?

The US government is an important customer for companies in the country. In the event of bankruptcy, the government will no longer be able to pay unpaid bills from companies. But the consequences will be far more serious: The U.S. economy could fall by 4 percent and unemployment could rise to 9 percent, according to rating agency Moody’s. This puts millions of jobs at risk. Households will lose up to $15 trillion in wealth.

What does this mean for Switzerland and the rest of the world?

A major fall in the largest economy would have serious consequences for the entire global economy and thus for the demand for Swiss goods. A default would cause “irreparable damage” to global financial stability, according to US Treasury Secretary Janet Yellen. The stock market will most likely take a nose dive. When the country defaulted in early 2019, the US stock market fell 20 percent. Additionally, bankruptcy can hit banks worldwide hard.

Is the US threatened with national bankruptcy in the event of a bankruptcy?

no Markets firmly believe that the default will be temporary and that Congress will eventually raise the debt limit.

Why is Congress waiting so long?

Both chambers, the Senate and the House of Representatives, must approve an increase in the debt limit. With their blocking stance, the Republicans are currently trying to force President Joe Biden (80) to cut the state budget.

Is the high level of US debt a threat?

The US national debt currently stands at 125 percent of gross domestic product and is therefore even higher than the heavily indebted countries France (113 percent), Spain (116) and Portugal (123). However, thanks to historically strong economic growth, high US debt is rarely perceived as a real problem. Also, the US can use the printing press to finance its central bank debt. But rising interest rates are causing more and more money to flow from households to interest payments. Interest rates on U.S. bonds are likely to rise significantly if the U.S. actually goes bankrupt.

What are the chances of the US going bankrupt?

Until now, Congress has never let it go this far. Instead, it has already increased its debt limit 80 times, lowered it five times, and suspended it five times. Therefore, the chances of bankruptcy are extremely low. However, there have already been several shutdowns. This means that the government can no longer pay some of its bills. Most recently, Democrats blocked it at the end of 2018 and the beginning of 2019 because they were against then-President Donald Trump (76) building a wall with Mexico.