There has been a lot of debate lately about the US government debt ceiling and whether Congress will act before defaulting. In a recent interview, Christine Lagarde, president of the European Central Bank (ECB), said that she is confident that the United States can maintain its debt obligations. However, she warned that if the US defaulted on its debts, it would be a “big disaster.”
Lagarde is confident in US debt management despite predictions of a possible government default crisis in August or September
Although the United States of America is an economic superpower, it has accumulated more than $31 trillion in debt held by the government and intragovernmental holding entities. The debt has grown exponentially in the past 20 years, and there has been a lot of talk of late about government defaults on its interest and principal payments to foreign investors, foreign governments, and other entities. Earlier this year, US Treasury Secretary Janet Yellen explained how the Treasury would have to enact “extraordinary measures” to pay off its debts. However, she also warned that the funds would “run out before the beginning of June.”
Unless Congress changes its approach, the US government may not be able to pay interest and principal to specific lenders by the summer. Yellen’s extraordinary measures provided the US with approximately $800 billion, and the government anticipates a substantial amount of taxpayer funding, expected to last through June. Speaking to the hosts of CBS News’ “Face the Nation” on Sunday, Christine Lagarde, president of the ECB, discussed debt problems in the United States and expressed confidence in the handling of its finances by the United States.
“I have enormous confidence in the United States,” Lagarde said. “I just can’t believe they would allow such a huge disaster to happen with the United States defaulting on its debt. It’s not possible. I can’t believe it would happen. If it did, it would have a very negative impact not only in this country, where trust would be challenged, but also throughout the world,” Lagarde added. The ECB President continued:
Let’s face it, this is the biggest economy. It is a major leader in economic growth around the world. You can’t let that happen. I understand politics, I myself have been in politics. But there comes a time when the best interest of the nation must prevail.
Lagarde’s comments on CBS followed a comment by economist Paul Krugman, who said there was a possibility the United States might default on its debt. He said he didn’t know when it would happen, but it would probably happen because a Republican-controlled House of Representatives refuses to raise the debt ceiling. “Who will trust the currency of a nation that seems to have lost its mind politically?” Krugman asked in his latest op-ed. “If that happens, the threat to the dollar’s reserve currency status will be the least of our problems.”
The ECB President raised the issue of competition between the US and China, which has intensified recently. Lagarde expressed her belief that healthy competition is beneficial and can lead to modernization. “There is certainly competition between these big economies,” Lagarde said. “The United States is the first economy in the world. China is clearly competing and is putting all its forces into that competition. I think competition is healthy. It has to stimulate innovation. It has to stimulate productivity. But it is inevitable that these two great economies will clash.
Despite Lagarde’s optimism, there has been a lot of tension between China and the United States lately. Tensions between the two countries increased when Nancy Pelosi, the US representative from California, visited Taiwan in August 2022. The head of the European Central Bank stressed that competition “should not be adversarial” and stressed that “conflict is not inevitable.” . While Lagarde is confident in the US government’s ability to manage its fiscal responsibilities, Politico reporters Jennifer Scholtes, Paula Friedrich and Beatrice Jin state that “by all indications, the US is most likely to move closer to the brink of default in August or September.”
What do you think of Christine Lagarde’s comments? Share your thoughts on this topic in the comments section below.
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