Debt ceiling: How could it affect the US?

Image copyright EPA Image caption At a news conference on Monday, Vice President Mike Pence and other administration officials expressed confidence the government would not default

Negotiations between Democrats and Republicans are putting a fresh twist on the dispute over raising the US debt ceiling.

The move, first reported by Fox News, is a new attempt by the Democrats to pressure Republicans into approving new legislation this week.

Democrats are insisting on legislation to fund the government and extend some immigration policies.

At a news conference on Monday, Vice President Mike Pence and other administration officials expressed confidence the government would not default.

If a deal were not made by 7 September, there would be severe consequences for the US and the world, according to the White House, including a potential default on the US debt.

Image copyright AP Image caption The planned deal would affect more than 800,000 people currently protected from deportation under the Deferred Action for Childhood Arrivals (Daca) program

President Donald Trump cancelled the DACA programme in March – effectively ending a policy that President Barack Obama implemented as a response to an increase in the number of unaccompanied minors crossing the Mexican border with the US.

Many participants in the DACA programme were brought to the US illegally as children.

The planned deal would affect more than 800,000 people currently protected from deportation under the Deferred Action for Childhood Arrivals (Daca) program.

Other provisions of the House of Representatives bill include:

$25bn (£18.7bn) to address the housing and mortgage crises caused by the global financial crisis.

$1.5bn for child health insurance and $2.1bn to offset the cost of the first year of a five-year deal.

A small Medicare premium reduction.

Photo copyright Reuters Image caption US Treasury Secretary Steven Mnuchin said last week he was hopeful the shutdown would be avoided

But the White House has said they would not tolerate “amnesty” of any kind, which would include protecting any of the individuals who currently benefited from the DACA programme.

The massive budget bill passed by the House on Monday did not touch the DACA issue.

For months, Democrats have expressed concern about the decision made by President Trump to cancel the programme.

But there are very few Republicans in Congress who are willing to cross the President on that issue.

What happens if the impasse over the debt ceiling goes unresolved?

The federal government will not be able to borrow any more money after 7 September, causing a default on the debt ceiling.

A government shutdown would begin on 14 September when the continuing resolution to fund government operations that was passed in February expires.

The figure published by the Treasury Department last week predicted that there would not be enough money to pay all of the US obligations up to 31 December of this year.

This budget blow-out would almost certainly push the US into a recession, according to Christine Lagarde, the managing director of the International Monetary Fund.

Ms Lagarde, who is chairing the IMF’s quarterly meeting in Indonesia this week, added that a shutdown would “almost certainly damage the fragile US recovery”, and the world would still see the US economy continuing to grow.

“During this time we’d expect a slowing down of the US recovery and a further rising global risk premium,” she said.

America’s relationship with China

The extent of the US debt could cause major economic damage, with the country’s massive credit rating possibly being downgraded and the value of the dollar hit.

The US has been warned that it needs to boost its foreign borrowing capacity to keep the purchasing power of its currency strong.

Not to mention that it has already taken on a $1 trillion budget deficit

Leave a Comment