Paul Ashworth, US economist at Capital Economics, says the proposal is “pretty far-fetched” but still preferable against the US defaulting on its debt.
âThe markets would prefer the debt ceiling to be raised through the normal channels of Congress, through legislation,â he said.
“But if it was a choice: The Treasury is going to default today, or it is going to pretend it has this $ 1 trillion coin and the Fed is ready to accept it, then they would rather they do. “
The United States has never defaulted before, and an administration unable to afford debt service would deal a blow to President Biden’s claims to competent governance after the widely regarded chaos under Donald Trump.
Most other countries, including the UK and most of Europe, do not place hard limits on government borrowing, although many have soft budget rules that aim to limit the amount. total. The United States, however, has a lethal combination of a tight debt ceiling and extreme partisanship.
Raising the debt ceiling was once routine for Congress, but avoiding funding crises has become more difficult over the past decade as the two sides of the US government increasingly clash.
“It could be a cataclysmic event if the United States did indeed default on its debts,” said James Knightley, ING economist.
“This is triggering a whole crisis of confidence in the US financial system and by extension, the global financial system.”