China cautions US to properly handle debt ceiling to avoid pushing world into recession
Beijing - China has cautioned the US to avoid the internal wrangles that might push the global economy to the edge of a cliff. The US national debt is edging closer to $31.4 trillion.
Chinese experts have termed the continuous political fights being witnessed in Washington DC over the debt ceiling issue may lead to an unprecedented default by the world's biggest economy on its national debt. This might push the entire e global economy into recession.
The debt ceiling is the amount of money the US Treasury is authorized to borrow to pay its financial obligations, including Social Security and Medicare benefits, tax refunds, and interest payments on the outstanding national debt.
The experts argue that the political tensions within the US Congress have led to a standoff, as the Republican lawmakers insist on federal spending cuts in return for agreeing to lift the debt ceiling and avoid a possible default.
IMF official Gita Gopinath while addressing the media at the World Economic Forum in Davos, "This shouldn't be an additional risk that the US or the world should have to deal with."
Gao Lingyun, an expert at the Chinese Academy of Social Sciences in Beijing, told the Global Times, that if the problem isn't handled correctly, it may lead to a US government shutdown, while debt and interest payments would squeeze the government's spending in other aspects.
In a new report released by the US Treasury on Wednesday, China reduced holdings of US Treasury debt by $7.8 billion in November to $870 billion - the lowest since June 2010.
"The debt ceiling should be the last shield to protect the healthy development of the US economy. However, the US government irresponsibly used the dollar over recent years to stimulate the domestic economy through large-scale borrowing. An unprecedented US debt default may occur, which will cause catastrophic harm to the fragile global economy," Dong Shaopeng, a senior research fellow at the Chongyang Institute for Financial Studies at the Renmin University of China, told the Global Times.
The US debt ceiling has been revised 104 times since 1940. Most of the revisions were to lift the ceiling to meet the US government's spending, according to media reports.
In December 2021, the US Congress raised the debt ceiling to $31.4 trillion. Due to the swelling of US borrowing, investors across the world increasingly doubt the "safe haven" nature of US debt, with many countries accelerating de-dollarization in their currency settlements.