What happens in the whole world, if the US hit the debt ceiling? | US Debt Ceiling.

 

What happens in the whole world, if the US hit the debt ceiling?

For the past month, the issue of the debt ceiling had become hot in America. However, on Thursday, the bill to increase the debt ceiling was also approved by the US Senateand now the bill has reached the desk of US President Joe Biden. As soon as he signs this bill will take the form of law and will come into force. 

Regarding the kind of ruckus that is being created regarding the debt ceiling, it seems that Joe Biden will pass it soon. As soon as the Senate passed the bill, for the first time in the history of America, the danger of sovereign debt default has also been averted. Today, we will talk about the impact of the debt ceiling all over the world. 

In the past decade, the US Congress has approved trillions of dollars in spending. Because of this, America's spending has increased almost three times since 2009. Understand this in such a way that in January 2023, the total national debt of America and its debt ceiling had reached 21.4 trillion dollars. 

Now let us understand the debt ceiling. Debt means that the US Treasury Department has to borrow more money to finance government spending and debt repayments if the national debt increases. The government's borrowing should not increase much, so it is controlled through law and this is called debt ceiling.

What is happening right now is that since 2001 the US government has been running a deficit of about $1 trillion every year. That is, America is spending so much money every year in comparison to tax and other income, that the government has to take loans from the market to meet this deficit. 

In the last decade, America has had to increase the debt limit manifold. So now let's talk about that if the bill to increase the debt ceiling was not passed in America, then what could be its effect? If the bill to increase the debt ceiling was not passed in America, the entire government would have come to a standstill. 

American Treasury Secretary Janet Yellen herself had said that if the debt ceiling is not increased, it can cause havoc, and America's disaster can shake the financial markets of the whole world. More than half of the world's foreign exchange reserves are in the form of US dollars. 

In such a situation, if there was a sovereign debt default in the US, the credit value of its treasury securities would have deteriorated. This would have caused a sharp decline in the value of the dollar and would have shaken the markets and economies of the whole world. 

It would have been difficult for poor countries heavily in debt to pay the interest on their loans. Loans taken in other currencies from a weak dollar become costlier and in some emerging economies a debt or political crisis also arises. Let's understand a little more deeply, worldwide American debt or say bonds are considered very safe. 

Foreign investors have a US debt of 7. 3 Lakh crores. Japan and China have more than a quarter of this. China has US securities worth $867 billion. On the other hand, Japan has a debt of $1,100,000 crore. The UK holds $655 billion, Belgium $354 billion, Taiwan $226 billion, India $224 billion, and Hong Kong $221 billion in US securities. 

The Cayman Islands has $284 billion and Ireland has $255 billion in US debt. From this, one can imagine how the US default could have brought terrible devastation to the whole world. Now let's talk about this crisis of America for India. At the end of December 2022, India's total external debt increased by 1.2% to reach $ 613.1 billion.

 Then the country's Debt to GDP remained at 19.1%. On the other hand, the country's forex reserve is around $600 billion. If America defaults, India would have suffered a direct loss due to the fall in the value of the dollar. This default also affects the stock markets of the country.

That's why investors were keeping an eye on American developments. Investors and markets heaved a sigh of relief with the bill's passage, and that's the reason why stock markets rallied on Friday after the debt ceiling passed the Senate. How did you like the information, do tell by commenting.