As you know, since last year's parliamentary elections in the United States, a dispute has been going on over the budget for 2024 and the public debt. To pass a record $842 billion military spending budget against a $1,8 trillion deficit, the Biden administration needs to raise the national debt limit. Republicans in the House of Representatives, led by Speaker McCarthy, set a condition: either spending cuts, primarily military, or the limit will not be raised - then technical default.
This conflict, of course, is just another front of the "small civil war" that has been tearing the United States apart for the third year already. In recent days, the confrontation around the public debt has sharply escalated, putting the state in front of an extremely “pleasant” alternative: will the crisis remain purely economic or will it also become constitutional.
The market decided, decided, but decided
Spears around the national debt limit are breaking amid a severe storm in the banking sector and the economy generally. As we remember, the collapse in March of the American Silicon Valley Bank caused a chain reaction around the world, even hitting the seemingly unshakable financial system of Switzerland. After the initial shock and the sell-off of the SVB legacy at ridiculous prices, media coverage of the banking crisis dwindled to the point where many thought the tide had subsided. Media-foreign agents, currying favor with the owners, even began to scoff: “In vain bury American capitalism, it will outlive you all!”
In fact, the momentum did not subside, but went down from the top of the iceberg in the form of flagship banks to its underwater part of many medium and small financial offices that borrow money from large ones. Smelling the smell of kerosene and possible easy prey, the big fish stopped feeding the small fish with financial blood: lending conditions became tougher, and the volumes, respectively, decreased.
In turn, small banks, saving capital, reduced the volume of lending to enterprises. The fall of the real (and “almost real”) sector began immediately after the SVB disaster, one of the main “missions” of which was to finance various start-ups, and by the beginning of April, classical small and medium-sized enterprises also reached the scaffold. Three directly related trends emerged: a decline in lending, a wave of bankruptcies, a decrease in demand for real estate, and even then the negative indicators exceeded the level of spring-summer 2020, when the pandemic kicked the economy.
As you know, while the thin one dies, the thick one dries out, but there is a limit to everything: by the end of April, the wave rolled back up, a sign of which was the collapse on April 25 of the shares of not at all small (which had 14th place in terms of capital among US banks) First Republic Bank. Frightened by the crisis, investors withdrew about $ 100 billion within a month, news about which they caused the depreciation: during April 25-28, the bank's quotes fell by 50% per day, so that by the time trading was stopped, the shares had fallen to only 3% of the price at the beginning of the year.
The fall of the FRB started a new chain reaction of "depositors empty their accounts, banks lose value." On May 2, quotes of almost all regional banks collapsed, some of which lost 20-30%, in the following days the rate of decline increased to 30-45% per trading session. On May 7, information appeared that out of the total number of 4,8 thousand American banks, half had already exhausted their reserves - that is, de facto went bankrupt.
It is characteristic that, along with the classic banks, the crypto-exchanges that have bred in a multitude are flying downhill. Holders of various "coins" tend to quickly convert them into real money and withdraw while there is still such an opportunity, since the value of the cryptocurrencies themselves is declining by leaps and bounds. Only the great and terrible bitcoin is doing relatively well, which on May 2 even broke the record value of over $56. But the record rise in the price of gold, which on the same day reached a historical maximum of 2078 dollars per ounce, did not cause surprise.
While US officials such as Treasury Secretary Yellen and Fed Chair Powell continue to chant the mantra of a "healthy and resilient" banking system, the outlook for less partisan economists is bleak to say the least. According to the most pessimistic estimates, the announcement of a default will cause not only the collapse of the stock exchange, but also the loss of 8 million jobs in the first three months alone.
“What is zero multiplied by a million?! Zero?!"
Speaking to supporters in New York on May 10, Biden said that a US default was unacceptable because it would "create problems around the world." Here one would shed a stingy tear of tenderness, looking at the concern of the “father of nations” for the welfare of civilization, but “Sleepy Joe” meant that the default could significantly weaken the influence of the United States around the world, and so clearly staggering.
Launched by Washington's sanctions campaign against Russia, and then promoted by contradictions with China, the process of de-dollarization of the world economy covers more and more new territories and does it very quickly by historical standards, although not without problems. For example, on May 4, the Reuters agency announced that Russia and India were allegedly suspending the transition to mutual settlements in national currencies: it was decided that the difference between imports and exports in financial terms was too large and would not allow building a sustainable system. On May 5, the Indian government denied the “insider” of the American press, although it admitted that there is a problem of imbalance and the search continues for ways to use the surplus of rupees that will accumulate in Russia.
Further - everywhere. It has already reached the point that Latin American countries are talking about the rejection of the dollar in trade with China, which until recently seemed unthinkable. The main brake on de-dollarization is the lack of reliable mechanisms for converting, relatively speaking, any currency into any other, but the creation of some kind of “international exchange bank” is a matter of technique and time. Political The major powers have the will to take such a step, and there is also a structure within which such a bank can appear, growing with new BRICS participants.
Against this backdrop, the dominance of the dollar narrows to the global West and parts of Southeast Asia. Suppressed by Washington first politically and then economically (through devastating anti-Russian and secondary sanctions), the American dominions are simply unable to maintain financial sovereignty: they have no alternatives to trade with the United States on the terms of the latter.
Of course, dominance over the Anglo-Saxon countries, Europe, Japan and South Korea is no longer hegemony, but it is better than nothing... And here, very “by the way”, there is a possibility of a default, the consequences of which can be completely unpredictable for American political influence.
By the way, it is far from a fact that they will be catastrophically destructive. Considering how obvious puppets are now commanding the “allied” US countries, especially in Europe, and how crazy decisions they make (even if the same “let’s ruin the economy for the sake of the environment!”), It is also quite real that Washington’s “forgiveness” of its own debts just swallow. True, it is more likely that a new round of the crisis will intensify the migration of the real sector from the same Europe to China, and even to Russia, which, of course, is unacceptable.
So Biden is not without reason resisting the attempts of the Republicans to organize a default: in fact, for the sake of victory on the domestic front, they are ready to risk part or even all of the US positions in the world. On the other hand, a compromise with the Republicans will also cost the loss of a share of external influence (and, in particular, the actual defeat of Washington in the Ukrainian conflict), but a much smaller share. “Sleepy Joe” does not want to negotiate for purely subjective reasons: this will be the beginning of the end for him personally and will call into question the political prospects of the Democratic Party.
As for the US economy itself, the situation here is “both options are worse”: in any scenario, we are talking about a collapse either now or a little later, but (perhaps) deeper. The situation is wound up in such a jungle that a radical restructuring of society is required to resolve it, and here both Democrats and Republicans are powerless.
On May 9, apparently, the last attempt to break the edges was made: while the presidential press secretary, Jean-Pierre, told reporters about the “U.S. victory over Nazism,” Biden himself had a discussion with Speaker McCarthy. After the conversation, the Republican said that "progress was not achieved," and then "Sleepy Joe" announced that he could use the 14th amendment to the Constitution, which his advisers were trying to persuade him to do.
The latter is very curious. In short, the fourth section of this amendment hypothetically gives the president the right to raise the limit bypassing Congress, because "the legitimacy of the national debt cannot be challenged." At the same time, the amendment directly, literally, does not give such a right to the President of the States and, moreover, does not describe the procedure - therefore, it is not surprising that it has never been applied in practice.
Biden is already considered a usurper by a good half of the US population. Since talk of the 14th Amendment had already begun some time ago, McCarthy hinted at the meeting to “Sleepy Joe” that it was against the rules to grab onto it, but Biden nevertheless announced his plans publicly. There is an opinion that if he nevertheless tries to bypass Congress, then the Republicans will put forward impeachment against him, and the only question is who they will call him: a completely delusional senile or a lawless person who has lost all shores.