Crucial debt ceiling talks are still far from success, but a deal is possible by the end of the week, says the Republican house speaker; the Greens step up their demand to scrap the stage three tax cuts. Follow updates here.
| How is one to assess the possibility of a voluntary default by the world’s most important country? Is something as mad as this really likely to happen? What might be the consequences if it did?
These questions are impossible to answer. This is not because it is a “black swan” – that is, unimaginable. A US default falls instead into a broad category of “known unknowns”, that is unforecastable, high-impact events. The financial crisis of 2007-09, the pandemic and Russia’s invasion of Ukraine were of this kind.
Debt ceiling negotiations. From left, US House Speaker Kevin McCarthy, Vice-President Kamala Harris, US President Joe Biden and Senate Majority Leader Chuck Schumer.Such events are impossible to predict because of their rarity and the complexity of their causes. We do not know enough to predict when and in what form the next pandemic will emerge, when and where someone will start a war or if US politicians will destroy the credit built up by their country over centuries.
Sensible people would conclude the ceiling is a nonsense. But it is not an irrelevance. Increasingly, the Republicans regard the ceiling as leverage over spending but not, it must be stressed, over deficits caused by tax cuts. They were happy with the latter under George W Bush and Donald Trump. Thus, as an explainer from the Brookings Institution notes: “Over the last three decades, the limit has precipitated political battles during which some legislators have used the vote on the debt ceiling to try to slow the growth of federal spending.”
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