Little by little, the day is approaching when the United States will reach the debt ceiling. Analysts expect that to happen around June 1. “Then the Finance Ministry will run out of money,” says macroeconomist Edin Mojacic. Negotiations are still underway to raise this ceiling. Participants in those consultations describe the talks as “productive”, but Mojacic believes little of that. “It’s usually the word you use when you have to say something, but you don’t agree to anything.”
With some scraping, the US can get its hands on the money
Mojácic says time is running out for them. Between the moment you make an agreement, it is approved by parliament, and the president signs it off, you need 4.5 working days. Coincidentally, next Monday is a holiday in the United States. Afterwards, the delegates are on a short vacation. But if there is an agreement, they have to run to Parliament to vote on it. This will be a major logistical task.
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“We only have one day left.”
What Mojácic is trying to stress is that the US only has one day left to reach an agreement. “If an agreement is not reached tomorrow, it will be very difficult to meet the June 1 deadline.” However, there is still a way out, the economist believes. “With a little bit of scraping, the US can get in on the money. Next week, US companies are required to file their second-quarter profit tax with the Treasury Department. That brings in some money.”
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Mojácic sees this as a stroke of luck, but the US also has bills to pay itself. The good thing about this incident is that the next US interest payment on the debt is on June 15th. So they can still extend through June 15th, without technically going bankrupt. Mojácic describes the conditions as a “circus”.
“The interest rate is going up.”
However, the problems do not end here for the United States. Credit rating agency Fitch warns that the country will lose its higher credit rating (AAA) if the debt ceiling is not raised. If the debt ceiling is exploited, the United States will be classified as in default, because the interest cannot be paid. It will also make it difficult for the United States to make new investments. If Fitch revises the rating, that would be “bad news” for the US, Mojácic says. “Then you can still get loans, but at a much higher interest rate.”
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