US Economy: America close to defaulter! Whole world will shake, millions of jobs at risk – us on verge to become defaulter first time ever millions of jobs are in danger
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US Treasury Secretary Janet Yellen warned in January that the US could default on debt payments by June. America has crossed the debt limit. Yellen requested the Parliament to increase the debt limit as soon as possible. If the US defaults on the debt, it will cause huge damage to the US economy, make people’s lives difficult and have a huge impact on global financial stability. The debt limit is the limit up to which the federal government can borrow. Since 1960, this limit has been increased 78 times. Last time it was increased to $ 31.4 trillion in December 2021. But it has gone beyond this limit.
dollar crisis
The debt to GDP ratio in the country has reached 120 percent in the year 2022, which is more than during the Second World War. After the Second World War, it was 114% in the year 1945. It has increased tremendously in the last two years. Since the year 2020, the total debt of America has increased by $ 8.2 trillion, whereas it took 230 years to reach $ 8.2 trillion earlier. It is believed that America’s debt could reach $ 51 trillion by 2033. That is, it can increase by $ 20 trillion in the next ten years.
Meanwhile, the hegemony of the US dollar is being challenged from all over the world. The US dollar has ruled the world economy for almost eight decades. It is considered one of the safest assets in the world. The world has been dependent on this currency for mutual trade, but now many countries want to distance themselves from the dollar. For this reason, questions are being raised on how much dominance the dollar will have in the future. China has done many deals with Saudi Arabia, France, Russia and Brazil in its own currency. BRICS countries i.e. Brazil, Russia, India, China and South Africa have announced to develop a new currency. The President of Brazil has asked his people to get rid of the US dollar.
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India has also started trading in its currency with many countries. The yuan is the second largest currency in Brazil’s forex reserves. Similarly, Russia has 33 percent yuan in its reserve. Russian companies issued bonds in yuan last year. In the midst of the banking crisis in America, people have thrown billions of dollars into crypto and gold. Since March 10, the price of bitcoin has climbed 45 percent and gold is moving towards crossing $ 2000 an ounce. In two weeks, $ 225 billion went out of American banks. The dollar’s share in the world’s forex reserves, which was once 72 per cent, has now come down to 59 per cent.
if defaulted
The US has never defaulted so far, so it cannot be said for sure what its effect will be. According to Moody’s Analytics Chief Economist Mark Zandi, if America defaults, millions of people may lose their jobs and the country may be in the grip of recession. Due to this, 70 lakh people can lose their jobs and the country can get trapped in financial crisis like 2008. In 2011, the US was on the brink of default and the US government’s perfect AAA credit rating was downgraded for the first time. This led to a huge decline in the US stock market, which was the worst week since the 2008 financial crisis.
In case of default, the government will not be able to pay many bills. Due to this lakhs of people will not be able to get financial assistance. This will block Social Security, Medicare and Medicaid, support programs for the elderly, food and housing programs. In 2022, 6.6 crore people got the benefit of social security. The salary of more than 10 lakh soldiers of the country can also be at risk. A default would also affect the country’s credit score, which could increase costs for the American people. US treasury bonds are considered risk free because the US has never defaulted on their payments. But after the default, investors will demand more interest. All types of interest rates are attached to bonds. That is, the default will affect everyone.
Read the story of making Coca Cola, it was made to get rid of the habit of drugs, people got addicted when it was distributed for free.
what is option
If the US defaults on debt payments, all outstanding series of bonds will be affected. These include bonds issued in global capital markets, government to government credit, foreign currency denominated loan agreements with commercial banks and institutional lenders. Along with this, the payment made by the government and government institutions will also be affected. If a country defaults, it can be prevented from raising money from the bond market. Especially until the default is resolved and investors are convinced that the government has the willingness and ability to pay.
Countries have several options in case of default. Sometimes the loan is restructured. That is, its due date is extended further. Similarly, to make the currency more affordable, it is devalued. After being a defaulter, many countries take various measures to spend. For example, if a country devalues its currency to repay its debt, then its products become cheaper to export. This benefits the manufacturing industry, which boosts the economy and makes loan repayment easier.
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