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global recession
Other Nations Baffled, Horrified by Very Idea of a Debt Ceiling as GOP Pushes US Toward Default
"We are an example to the world," wrote one American economist. "An example of what not to do."
May 19, 2023
Nations around the world are looking on with a mixture of alarm and bafflement as the United States hurtles toward an economy-wrecking default, with the Republican Party refusing to raise the country's globally unique debt limit without massive, harmful spending cuts.
The possibility of a U.S. default—a failure to pay the government's obligations—has already rattled global markets and prompted grave warnings from major institutions such as the International Monetary Fund, which said last week that a default would have "severe repercussions" for a world economy already facing the prospect of a central bank-induced recession.
The Washington Postreported Friday that the finance ministers of G7 nations have privately asked U.S. Treasury Secretary Janet Yellen for "updates on the status of negotiations between the White House and House Republicans" as officials from the rich countries gather in Hiroshima for their annual summit.
Finance ministers have also voiced their concerns publicly. German finance chief Christian Lindner said last week that he hopes "an adult decision will be made with regard to the development of American government finances and the associated effects on the global economy."
Kazuo Ueda, governor of the Bank of Japan, cautioned that a U.S. default could become a "big problem" that the Federal Reserve "may not be able to counteract."
"The United States is one among the few polities that have adopted and retained debt limits."
The U.S. debt limit, which currently sits at $31.4 trillion, is a "global outlier," the Atlantic Council's Mrugank Bhusari wrote in March, noting that "the United States is one among the few polities that have adopted and retained debt limits."
"Debt limits like the United States'... are not the norm—and they rarely cause major deadlocks in the few countries that have adopted this tool," Bhusari observed. "Like the United States, Denmark also sets its debt limit as a nominal value. But that’s where the similarity ends. The Danish Parliament intentionally sets the ceiling sufficiently high such that it will not be crossed, rendering it no more than a formality."
"Like the United States and Denmark, Kenya also has a nominal debt limit. However, it is under the process of replacing the nominal limit with a limit as a percentage of GDP at 55%," Bhusari continued. "Australia briefly experimented with a debt limit similar to that of the United States, experienced the political infighting that Washington is familiar with, and abolished it soon after."
Citing one Latin America expert, the Post noted Friday that "a debt ceiling like the one that exists in the U.S. stirred debate" in Brazil, where the Lula government is aiming to loosen existing restraints on government spending.
The idea of imposing a strict debt limit "was shot down vehemently, thanks to the U.S. example," the Post reported.
"We are an example to the world," Stephanie Kelton, an American economist, wrote on Twitter. "An example of what not to do."
\u201cWe are an example to the world. An example of what not to do. https://t.co/K4ISWXTgkI\u201d— Stephanie Kelton (@Stephanie Kelton) 1684507808
The international community's reaction to the perilous U.S. debt ceiling standoff comes as President Joe Biden is facing growing pressure from lawmakers at home to end the crisis unilaterally if necessary by invoking the 14th Amendment, which states that "the public debt of the United States... shall not be questioned."
Progressives and legal scholars have long argued that the debt limit, first imposed by Congress in 1917, is unconstitutional and should be abolished—an argument that the National Association of Government Employees makes in a lawsuit filed in federal court 10 days ago.
But as The American Prospect's David Dayen wrote Friday, the plaintiffs "didn’t file a motion for immediate relief," so "the case has sat dormant."
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