Will the United States default on its debt? — that’s the question spooking the Group of 7 (G7) nations at the moment. A potential default could trigger unprecedented consequences for the world economy, which is worrying the grouping.
Last week, G7 finance leaders met for three days in Japan amid the looming spectre of a debt default by the US.
While there was no mention of the US debt ceiling stalemate in the G7 joint statement, reports added that the ongoing crisis in the US was prominent during discussions.
The standoff has already hit global markets, as borrowing costs have risen on aggressive monetary tightening by the US and European central banks.
However, Treasury Secretary Janet Yellen remained hopeful of a solution before the ‘X-day’ — the day the US is likely to start defaulting.
The G7 nations seemed to be prepared for the worst and its joint statement did indicate that. “We need to remain vigilant and stay agile and flexible in our macroeconomic policy amid heightened uncertainty about the global economic outlook,” the communique read.
Meanwhile, talks on the debt limit continued over the weekend. The deadlock continued over the Republican demand for cuts in welfare spending as a pre-condition to hike the debt limit. However, President Joe Biden and Democrats want a deal with no cuts in spending.
“We’ve not reached the crunch point yet but there’s real discussion about some changes we all could make,” Bloomberg quoted Biden as saying.
If a deal is not reached soon, the US may start defaulting by as early as June 1.
On May 10, 2023, the US Treasury Department just had $88 billion of extraordinary measures to pay for government’s bills. A week ago, this figure stood at round $110 billion.
This means that just over a quarter of the $333 billion dollars of authorised measures are available to the Treasury department before the US defaults, media reports said.
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