THE SQUIZ
The US Treasury Secretary Janet Yellen has warned the government could begin defaulting on its debt (that is, failing to make the repayments it owes) by 1 June if their federal debt ceiling isn’t raised. It would be a historic first and it follows Yellen’s warning earlier this year that “failure to meet the government’s obligations would cause irreparable harm to the US economy, the livelihoods of all Americans, and global financial stability.” It means the US could stop paying welfare benefits, military and public servant salaries, tax refunds, retirement pensions – basically anything that involves the government paying out money. And to add to the stress, economists have predicted that a default would shake international markets to their core, potentially plunging the world into a deep recession that could set America back for generations. 

UMM YOU’RE GONNA HAVE TO EXPLAIN THIS TO ME… 
The US has a huge national debt – more than US$31.45 trillion to be exact… It’s accumulated the debt since the American Civil War by selling what’s called ‘marketable securities’ such as Treasury bonds and notes. And then came COVID… Between 2020-22, spending increased by about 50% in the US due to tax cuts and stimulus programs which were accompanied by decreased tax revenue caused by widespread unemployment. A lot of governments were in the same boat, including Oz… But the issue for America is there’s a legal limit on how much debt the government can get into. In the past, Republicans and Democrats have agreed to raise that limit – it’s happened 78 times since 1960. But this year, hard-right Republican lawmakers are refusing to do it as a way to force US President Joe Biden to cut government spending. Since the impasse started, the Treasury has been using temporary accounting measures to keep paying, but Yellen says that’s about to end.

SO WHAT WOULD IT MEAN IF AMERICA DEFAULTS?
All and sundry say it would be a cluster disaster for the US and the world. And the fix for it isn’t economic – it’s political. Last week the Republicans in the House of Reps passed a bill that raises the debt ceiling at the same time as drastically cutting government spending. It would need to be passed by the Democratic-controlled Senate and signed by President Biden – and that ain’t gonna happen… For Biden’s part, he’s determined not to let Republicans play chicken with the US economy and wants them to raise the debt ceiling, no strings attached. Biden and chief provocateur/Republican House Speaker Kevin McCarthy will meet on 9 May, and market watchers are hoping they reach a deal before it turns into a boom-crash opera. As one analyst said: “There’s going to be a lot of drama, for sure.”