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Friday, January 27, 2023

Global Financial Collapse Warning: World Risks Economic Collapse As US Approaches Debt Limit | World | News

The world could be on the verge of a global financial crisis if the US debt limit is not raised. On Thursday, the US hit its debt limit of $31.4 trillion on Thursday and has begun to take action to prevent collapse from occurring. If the US defaults on its debt, it could spell disaster for the world economy.

As the crisis looms, President Joe Biden has engaged in talks with those who could fix the problem, including Republican House Speaker Kevin McCarthy.

McCarthy could raise the US debt ceiling to avoid disaster. However, this would mean that the Democratic president would reach an agreement with the Republicans on the matter. JPMorgan Chase bank has warned that the lack of security in the deal would have far-reaching ramifications for the US and global economies.

Speaking to CNBC’s Squawk Box, JPMorgan Chase CEO Jamie Dimon said: “We should never question the solvency of the United States government. That is sacrosanct, it should never happen.”

“Of course, the Democrats can blame the Republicans and the Republicans can blame the Democrats. I don’t care who blames whom, even questioning it is wrong. That is part of the financial structure of the world. This is not something we should be messing with at all.

“Americans need to understand that the American financial system is basically the crux of the world’s financial system and we shouldn’t trifle with it.”

In a letter, US Treasury Secretary Janet Yellen wrote: “I respectfully urge Congress to act expeditiously to protect the full faith and credit of the United States.”

It added that a US debt default “will cause irreparable damage to the US economy, the livelihoods of all Americans, and global financial stability.”

To get an idea of ​​how much damage, economists have said that six million jobs could be lost overnight if the US defaults on its payments.

The president’s press secretary, Karine Jean-Pierre, said there was a “duty” to increase the limit.

He added: “As the President has said many times, raising the debt ceiling is not a negotiation, it is an obligation of this country and its leaders to avoid economic chaos,” he said.

“Congress always has, and the president expects them to do their duty once again. That’s not negotiable.”

The US debt limit has been around for over a century. Its purpose is to limit the amount the US can borrow.

Since its introduction, it has been collected regularly and currently amounts to approximately $34.1 trillion, about 120 percent more than the country’s total GDP.

The debt is owed not to any one person, but to institutions and individuals around the world, only two-thirds of whom are inside the US.

Japan, China and the United Kingdom top the list to which the United States owes.

While numbers can be redone to buy more time, they can only buy so much, just like salvaging water can only buy a sinking ship for only a certain amount of time.

On the ramifications of a default, Goldman Sachs economists said: “It seems likely that uncertainty about the debt limit in 2023 could generate substantial volatility in financial markets.”

If the debt limit is not raised in time, “it would pose a greater risk to government spending and ultimately to economic growth than to Treasury securities themselves.”

They also noted that consumer confidence at home and abroad would fall.

The United States is the lynchpin of the world economy, and the economic damage there has ramifications around the world.

As is well known, the financial crisis of 2008 started in the United States, but soon after it spread throughout the world.

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