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News analysis: What are the politics behind U.S. debt crisis?

2023/6/1 9:14:48   source:CGTN

Within a week before the June 5 deadline when the U.S. Treasury Department could run out of funds to pay its debts, the House Rules Committee on Tuesday voted 7-6 to approve a deal reached by President Joe Biden and House Speaker Kevin McCarthy to lift the $31.4 trillion debt ceiling and achieve new federal spending cuts.

Though McCarthy described the bill as the "most conservative deal we've ever had," it still faces challenges from the Republican-controlled House of Representatives ahead of an expected vote on Wednesday as the scale of spending cut is not as they expected.

If the deal passes the House, it will be sent to the Senate, which is controlled by Democrats with a narrow 51-49 majority. Senate Majority Leader Chuck Schumer told senators to be prepared to vote on Friday and potentially over the weekend.

The Democrats also slammed Biden's "compromise" on the deal as new work requirements would be imposed on some recipients of government aid, including food stamps and the Temporary Assistance for Needy Families program.

Disunited United States

On April 26, the House passed a Republican debt ceiling plan that includes $4.5 trillion in government spending cuts, including the elimination of Biden's student loan forgiveness plan as well as tax credits for companies that invest in green energy, drawing harsh criticism from Biden and his party.

"It's not about fiscal discipline," Biden said. "It's about cutting benefits for folks that they don't seem to care much about. It's about finding ways to squeeze out more of America's middle class."

The president proposed his own $6.9 trillion budget in March that included raising taxes on the wealthiest Americans and corporations and expanding social safety net services, USA Today reported.

The debit ceiling negotiations come at a time when political polarization intensifies in the country, with both Biden and McCarthy trying hard to persuade the Democrats and Republicans to compromise and pass the bill.

Su Xiaohui, an associate research fellow at the China Institute of International Studies, told China Media Group (CMG) that the Republicans want to reduce spending to affect the Biden administration by undermining its policies so as to benefit the Republican Party in the election next year.

"The cores of the confrontation between the two parties are politics, interests and votes," she said.

Democrats and Republicans are "all gearing up for the 2024 elections – who can blame who for what's going to go bad – but no one has a plan how to do better," said Einar Tangen, senior fellow at Taihe Institute.

A global opinion poll conducted by CGTN revealed that a huge majority – 88.52 percent – of 57,957 respondents said the debt ceiling issue has become a partisan tool, further exacerbating the crisis.

The Chinese Foreign Ministry also pointed out that the two U.S. parties are increasingly at odds in many aspects, such as voter base, ideology and identity. As a result, the traditional inter-party balance based on policy compromise has become more difficult to sustain, according to a report on the state of democracy in the U.S.

The two parties see each other not only as political opponents but also as a threat to the country, and political polarization is a major obstacle to policy decision-making, the report said, adding that "the United States of America has become the disunited states."

Global consequences

While Liu Baocheng, dean of the Center for International Business Ethics at the University of International Business and Economics, told CGTN that another debt ceiling rise will add more debt burden to individual households in the country, others are also worried about the global effects of the debt crisis.

The U.S. debt issue is adding to problems facing a slowing global economy, with rising interest rates and high debt levels already choking back investments needed to fuel greater output, World Bank President David Malpass said.

"Clearly, distress in the world's biggest economy would be negative for everyone," he told Reuters on the sidelines of the G7 finance ministers and central bank governors' meeting in Niigata, Japan. "The repercussions would be bad to not get it done."

A former member of the Nigerian House of Representatives, Dakuku Peterside, said that most reserves in African countries are held in U.S. dollars and mostly in U.S. banks. During an interview with CMG, he warned that Africa is going to be more impacted than other parts of the world if the U.S. financial system crashes.

There is no precedent for debt default in the country, making it hard for institutions to prepare. CNN reported that the CEO of JPMorgan Chase said the bank was holding weekly meetings to prepare for a possible default.

Congress has always acted when called upon to raise the debt limit. Since 1960, Congress has acted 78 separate times to permanently raise, temporarily extend, or revise the definition of the debt limit, according to the U.S. Department of the Treasury.

The national debt reached over $31 trillion for the first time last year. The borrowing cap is set at roughly $31.4 trillion.

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