The stalemate over raising the federal debt limit remains unresolved following a meeting between President Biden and House Speaker Kevin McCarthy.
- Some House Republicans seem to underestimate the gravity of a sovereign default, which could potentially undermine the dollar’s status as the global reserve currency.
Why it matters: The implications of such a default could be severe, possibly triggering a recession, inflation, and financial market instability.
- A default could also jeopardize the U.S.’s global economic standing, with international investors potentially turning to other currencies.
- Given the current global context of the pandemic and geopolitical tensions, the fallout from a default in 2023 could be particularly severe.
Despite the risks, House Republicans remain unmoved, maintaining their commitment to spending cuts and opposition to much of Biden’s agenda.
- Amid these threats, constitutional experts are urging Biden to invoke the 14th Amendment to mandate the Treasury to pay legal debts, thereby avoiding default.
- However, the President’s advisers are divided on this course of action.