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If a deal isn’t struck before midnight on Friday, those payments will force Treasury Secretary Janet Yellen to impose another set of “emergency” spending measures -- on top of those that have been in place since October -- before the government’s ability to pay its bills is finally exhausted on or about December 15.

If that were to occur, which is admittedly unlikely, it would be catastrophic for the US, and chaotic for the rest of the world.

Yellen has said a failure to raise the ceiling would “eviscerate” the US recoveryfrom the pandemic, spread pain through the economy and throw America into a deep recession.

It would cause the US to default, albeit probably only technically and temporarily, on its debts for the first time, with implications for the US dollar’s pre-eminence as a global currency and for America’s cost of borrowing.

It almost certainly won’t come to that, but Congress is playing a dangerous game of chicken for purely partisan political purposes, with politics the reason neither party is willing to be seen to have blinked.

In October, Republican Senate minority leader Mitch McConnell did agree to stave of an imminent default by backing (and convincing 10 other Republicans in the Senate to support) an eleventh-hour measure that enabled the Biden administration to avoid disaster. That, however, didn’t resolve the issue. It merely bought some time - until now.

The deal averted a default, but drew the wrath of former president Donald Trump, who has been attacking McConnell and those who voted for the deal (in his usual colourful terms) for failing to use the debt ceiling impasse to “totally kill” the Democrats’ agenda.

In many respects the wrangling over the debt ceiling is a battle of perceptions. The Republicans want to tie the Democrats to the increase in the ceiling and make it appear that they are responsible for the entirety of what will be a very large number. The Democrats want to avoid that outcome by forcing bi-partisan responsibility for the increase in the debt limit.

Read more:

https://www.smh.com.au/business/banking-and-finance/it-s-five-to-midnight-again-us-debt-drama-isn-t-good-for-america-or-the-rest-of-us-20211202-p59e2n.html

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