SHANGHAI, May 29. /TASS/. The agreement to raise the debt ceiling in the US was good news for the global economy, but it does not mean that the problem has been solved, as Republicans and Democrats are still divided on a number of issues.
Ye Yu, Assistant Director at the Institute for World Economy Studies at the Shanghai Institute for International Studies, expressed this opinion talking to a TASS correspondent on Monday.
"This is good news in terms of the stability of the global economy and finances, but it does not mean that there are no [more] problems. It’s more like a ticking time bomb, since the differences between the two parties are very big," she said, adding that the differences concern budget expenditures, monetary policy, the base rate and a number of other issues.
"Many uncertainties remain," the expert says.
According to Ye Yu, the US still has some obstacles to overcome to cope with the mounting pressure surrounding the budget deficit.
We are talking about inflation, job creation and the need to reduce imports. "There are a lot of uncertainties affecting the public debt, so I can’t say exactly how many more times they will apply it (they will raise the public debt ceiling - TASS), but in general we can say with confidence that they will continue to do this," the expert believes. The US will face the same challenges every year when it comes to the budget, she said.
The expert also drew attention to the fact that the state of affairs in this area may change if the Republicans, who are in favor of reducing budget spending, win the House. "The United States is the world's largest debtor country and the structure of its financial income and expenditure cannot change quickly," she added.
Speaking about the possibility of the US defaulting at some point in the future, Ye Yu noted that such a possibility still exists. "In fact, it cannot be completely ruled out," she said, adding that history is full of such examples, pointing to the UK after the Second World War.
Late last week, the White House and Republicans in Congress reached an agreement to raise the US national debt ceiling until January 1, 2025. The text of the bill was published on Sunday on the website of US House of Representatives Speaker Kevin McCarthy. It clarifies that the public debt ceiling will be reached on January 2, 2025. This could lead to a default unless the government takes emergency action or raises the debt limit again.
Default threat
In January, the United States exceeded the legally set debt ceiling of $31.4 trillion. After that, the US Treasury had to use emergency measures to stay afloat. In recent months, the US administration has called on Congress to raise the national debt ceiling.
Republicans, who control the House of Representatives, agreed to raise the debt ceiling but only on the condition that government spending would be significantly cut. The White House subsequently rejected these demands, saying that it was ready to discuss spending cuts, but lawmakers should raise the debt ceiling without any conditions.
US Treasury Secretary Janet Yellen warned Congress that June 5 was the deadline for the debt ceiling to be raised. If Congress fails to raise the debt ceiling, the US faces a potential economic and financial catastrophe, Yellen noted. Biden and Republican leaders in Congress have agreed to hold regular consultations to keep this from happening.
On Monday, US President Joe Biden and US House Speaker Kevin McCarthy announced a bipartisan agreement to raise the national debt ceiling, eliminating the threat of a catastrophic default.
The US House of Representatives is expected to vote on the initiative to raise the public debt ceiling on Tuesday, May 30.