With debt parleys at impasse, economy teeters on brink

Heightening uncertainty

Hung Tran, a nonresident senior fellow at the GeoEconomics Center of the Atlantic Council, a think tank in Washington, said political wrangling over the national debt ceiling has heightened uncertainty at the wrong time and is helping to raise the chances of a severe recession.

"Beyond the near-term outlook, the recurrence of the debt ceiling 'mini crises' would erode the reliability, predictability and trustworthiness of the US government — possibly causing it to eventually lose its AAA rating and raising its funding costs," said Tran, a former deputy director at the International Monetary Fund.

"More fundamentally, the practice of using the debt ceiling as a political tool to change or terminate federal programs approved by previous Congresses reflects bad governance in the US — notwithstanding the fact that the US public debt/GDP ratio is too high and needs to be reduced over time."

Many economists and budget experts have predicted that a default would trigger significant interest rate rises, a fall in the stock market, instability throughout the financial system and the weakening of the dollar's leading role in the global economy, said William Galston, a senior fellow at the Brookings Institution in Washington.

Galston said that since 1932 voters have held the president responsible for overall economic conditions, so if not raising the debt ceiling brings about the catastrophe that many experts fear, Biden is likely to pay a price, even if his Republican challenger advocated an inflexible position that contributed to the default.

"Although the president and his advisers seem confident that they have the upper hand in this fight, a debt default could propel the Republican presidential candidate to victory in 2024," Galston wrote in a post on the Brookings' website on May 15.

Agencies and Xinhua contributed to this story.