<p><meta name="uuid" content="uuidihHAjt28LoOp" /><meta charset="utf-8" />The USA is edging closer to defaulting on its debt. Unless the debt ceiling is raised by June 5, the country will fall into an economic crisis that may have a far-reaching impact with global spillovers expected, affecting the likes of India, an emerging economy.&nbsp;</p>

<p>The economists are bracing for two scenarios and the effect it might have on the Indian economy. The first one is the base case, meaning, the ceiling will be raised eventually but the volatility in stock markets and currencies would have a sizeable impact.&nbsp;</p>

<p>Even US Treasury Secretary Janet Yellen has warned that waiting till the eleventh hour to raise the ceiling could cause more harm than good.&nbsp;</p>

<p>"Waiting until the last minute to suspend or increase the debt limit can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States," she added.</p>

<p>As markets face danger, the investors park their money in less risky assets such as bonds, gold and dollars. Consequently, the dollar index has strengthened quite a lot in recent months which has put the rupee under pressure.&nbsp;</p>

<p>Of all the foreign exchange reserves held by the world’s central banks, US dollars account for 58 per cent. If the US does indeed default, it will lose its financial prominence and the centre of world trade. Rating agencies will heavily downgrade its creditworthiness and US sovereign bonds where the Indian government parks its money would have their value reduced to incredibly low levels.&nbsp;</p>

<p>Most companies generate funds for their development projects by taking on debt. A US default could prove a hindrance in the development as there will be less liquidity in the market and debt bonds will provide little to no monetary benefit.&nbsp;</p>

<p><strong>Watch | US Treasury Secretary warns country running out of cash</strong></p>

<p><iframe allowfullscreen="" autoplay="1" frameborder="0" height="350" src="https://www.wionews.com/videos/us-treasury-secretary-warns-country-running-out-of-cash-biden-mccarthy-hold-talks-on-debt-ceiling-595340/embed" width="560"></iframe></p>

<p>The second scenario is a bit of uncharted territory where the US defaults, albeit briefly. Though unlikely, if it happens, the risk-off sentiment would be triggered and could result in depreciation pressures on emerging market currencies viz. rupee.&nbsp;</p>

<p>A lot of what will happen remains in the grey area for even the Reserve Bank of India has not prepared for such a situation. A default will have catastrophic consequences but given the central position of the US dollar in global trade, especially after World War II, the country and its currency is deemed too big to fail by the pundits.</p>

<h2><strong>What is the debt limit?</strong></h2>

<p>The debt limit is the amount of money that the US government can borrow to meet its financial obligations such as social security, military salaries and medicare benefits payments.&nbsp;</p>

<p>Congress earlier this year extended the statutory debt limit to $31.4 trillion. However, the weak economic fundamentals and overflowing expenditures mean that the US will be breaching the limit. Consequently, Congress has been engaged in a fierce tussle to raise the limit.&nbsp;</p>

<p><a href="https://www.wionews.com/world/explained-us-is-running-out-of-cash-know-what-is-debt-ceiling-and-current-crisis-595534" target="_blank"><strong>ALSO READ | Explained | US is 'running out of cash'. What is the debt ceiling crisis?</strong></a></p>

<p>Notably, to raise the limit, any agreement reached will have to pass the scrutiny of the Republican-controlled House and the Democratic-led Senate before Biden could sign it into law - a process that could take more than a week.</p>

<p><em>(With inputs from agencies)</em></p>

<p><strong>WATCH WION LIVE HERE:&nbsp;</strong></p>

<p><iframe allow="accelerometer; autoplay; encrypted-media; gyroscope; picture-in-picture" allowfullscreen="" frameborder="0" height="350" loading="”lazy”" src="https://www.wionews.com/live-tv/embed?autoplay=1&amp;mute=1" width="100%"></iframe></p>


The USA is edging closer to defaulting on its debt. Unless the debt ceiling is raised by June 5, the country will fall into an economic crisis that may have a far-reaching impact with global spillovers expected, affecting the likes of India, an emerging economy.

The USA is edging closer to defaulting on its debt. Unless the debt ceiling is raised by June 5, the country will fall into an economic crisis that may have a far-reaching impact with global spillovers expected, affecting the likes of India, an emerging economy. The economists are bracing for two scenarios and the effect it might have on the Indian economy. The first one is the base case, meaning, the ceiling will be raised eventually but the volatility in stock markets and currencies would have a sizeable impact. Even US Treasury Secretary Janet Yellen has warned that waiting till the eleventh hour to raise the ceiling could cause more harm than good. "Waiting until the last minute to suspend or increase the debt limit can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States," she added. As markets face danger, the investors park their money in less risky assets such as bonds, gold and dollars. Consequently, the dollar index has strengthened quite a lot in recent months which has put the rupee under pressure. Of all the foreign exchange reserves held by the world’s central banks, US dollars account for 58 per cent. If the US does indeed default, it will lose its financial prominence and the centre of world trade. Rating agencies will heavily downgrade its creditworthiness and US sovereign bonds where the Indian government parks its money would have their value reduced to incredibly low levels. Most companies generate funds for their development projects by taking on debt. A US default could prove a hindrance in the development as there will be less liquidity in the market and debt bonds will provide little to no monetary benefit. Watch | US Treasury Secretary warns country running out of cash The second scenario is a bit of uncharted territory where the US defaults, albeit briefly. Though unlikely, if it happens, the risk-off sentiment would be triggered and could result in depreciation pressures on emerging market currencies viz. rupee. A lot of what will happen remains in the grey area for even the Reserve Bank of India has not prepared for such a situation. A default will have catastrophic consequences but given the central position of the US dollar in global trade, especially after World War II, the country and its currency is deemed too big to fail by the pundits. What is the debt limit? The debt limit is the amount of money that the US government can borrow to meet its financial obligations such as social security, military salaries and medicare benefits payments. Congress earlier this year extended the statutory debt limit to $31.4 trillion. However, the weak economic fundamentals and overflowing expenditures mean that the US will be breaching the limit. Consequently, Congress has been engaged in a fierce tussle to raise the limit. ALSO READ | Explained | US is 'running out of cash'. What is the debt ceiling crisis? Notably, to raise the limit, any agreement reached will have to pass the scrutiny of the Republican-controlled House and the Democratic-led Senate before Biden could sign it into law - a process that could take more than a week. (With inputs from agencies) WATCH WION LIVE HERE:

US is nearing its debt default deadline. What is its impact on Indian economy?

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<p>As the back-and-forth on extending the debt limit continues, a group of progressive lawmakers in the US are now urging President Joe Biden to use his authority under the 14th Amendment of the Constitution to continue paying the US government’s bills, even if the ceiling is not raised.&nbsp;</p>

<p>With Republicans adamant that the Biden administration implement big spending cuts if the debt ceiling was to be raised, the search for a viable 'Plan B' has been ongoing. According to Democrat lawmakers, the 14th Amendment of the Constitution should be used as the escape route. The law states: "The validity of the public debt of the United States...shall not be questioned."</p>

<p>The likes of&nbsp;Tina Smith, Elizabeth Warren, Ed Markey and Bernie Sanders have written a letter to Biden, listing the plan, claiming that GOP lawmakers were not negotiating in good faith.&nbsp;&nbsp;</p>

<p>Even Biden has considered the alternative but experts fear that using it would trigger a legal battle, as well as undermine global faith in USA's creditworthiness and damage the economy.&nbsp;</p>

<p>“I have been considering the 14th Amendment. And a man I have enormous respect for, Larry Tribe, who advised me for a long time, thinks that it would be legitimate. But the problem is it would have to be litigated," said Biden last week.&nbsp;</p>

<h2><strong>Where are the talks headed?</strong></h2>

<p>After reports claimed that talks between Biden's Democratic administration and House Republicans had come to a halt, an NBC report, late on Friday night claimed that the two factions had returned to the negotiating table. Later, a White House official confirmed to the news outlet that the two parties had reopened talks.&nbsp;</p>

<p>"We will be back in the room tonight," House Speaker and Republican leader Kevin McCarthy told Fox Business.&nbsp;</p>

<p><a href="https://www.wionews.com/world/us-debt-ceiling-talks-resume-after-temporary-pause-report-594289" target="_blank"><strong>ALSO READ | US debt ceiling talks resume after a temporary pause: Report</strong></a></p>

<h2><strong>What is the debt limit?</strong></h2>

<p>In layman's terms, a debt limit is the amount of money that the US government can borrow to meet its financial obligations such as social security, military salaries and medicare benefits payments.&nbsp;</p>

<p>Congress earlier this year extended the statutory debt limit to $31.4 trillion. However, the weak economic fundamentals and overflowing expenditures mean that the US will be breaching the limit. Consequently, Congress has been engaged in a fierce tussle to raise the limit.&nbsp;</p>

<p>According to US Treasury Secretary Janet Yellen, even the extraordinary measures, if implemented will only buy the government a limited amount of time.&nbsp;&nbsp;</p>

<p>"It is therefore critical that Congress act in a timely manner to increase or suspend the debt limit. Failure to meet the government's obligations would cause irreparable harm to the US economy, the livelihoods of all Americans, and global financial stability," warned Yellen earlier this year.&nbsp;&nbsp;</p>

<p><a href="https://www.wionews.com/videos/us-debt-ceiling-crisis-president-joe-biden-cancels-post-g7-asia-tour-593388"><b>WATCH |&nbsp;US debt ceiling crisis: President Joe Biden cancels post-G7 Asia tour</b></a></p>

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<p>With the Senate under the control of Democrats and the House in Republican hands, it is highly unlikely that a straightforward limit hike will be possible.</p>

<p>If the congressional lawmakers cannot make a decision quickly, the world's largest economy could risk defaulting on its debt.</p>

<p><em>(With inputs from agencies)</em><br />
<br />
&nbsp;</p>

<p><strong>WATCH WION LIVE HERE:&nbsp;</strong></p>

<p><iframe allow="accelerometer; autoplay; encrypted-media; gyroscope; picture-in-picture" allowfullscreen="" frameborder="0" height="350" loading="”lazy”" src="https://www.wionews.com/live-tv/embed?autoplay=1&amp;mute=1" width="100%"></iframe></p>


As the back-and-forth on extending the debt limit continues, a group of progressive lawmakers in the US are now urging President Joe Biden to use his authority under the 14th Amendment of the Constitution to continue paying the US government’s bills, even if the ceiling is not raised.

As the back-and-forth on extending the debt limit continues, a group of progressive lawmakers in the US are now urging President Joe Biden to use his authority under the 14th Amendment of the Constitution to continue paying the US government’s bills, even if the ceiling is not raised. With Republicans adamant that the Biden administration implement big spending cuts if the debt ceiling was to be raised, the search for a viable 'Plan B' has been ongoing. According to Democrat lawmakers, the 14th Amendment of the Constitution should be used as the escape route. The law states: "The validity of the public debt of the United States...shall not be questioned." The likes of Tina Smith, Elizabeth Warren, Ed Markey and Bernie Sanders have written a letter to Biden, listing the plan, claiming that GOP lawmakers were not negotiating in good faith. Even Biden has considered the alternative but experts fear that using it would trigger a legal battle, as well as undermine global faith in USA's creditworthiness and damage the economy. “I have been considering the 14th Amendment. And a man I have enormous respect for, Larry Tribe, who advised me for a long time, thinks that it would be legitimate. But the problem is it would have to be litigated," said Biden last week. Where are the talks headed? After reports claimed that talks between Biden's Democratic administration and House Republicans had come to a halt, an NBC report, late on Friday night claimed that the two factions had returned to the negotiating table. Later, a White House official confirmed to the news outlet that the two parties had reopened talks. "We will be back in the room tonight," House Speaker and Republican leader Kevin McCarthy told Fox Business. ALSO READ | US debt ceiling talks resume after a temporary pause: Report What is the debt limit? In layman's terms, a debt limit is the amount of money that the US government can borrow to meet its financial obligations such as social security, military salaries and medicare benefits payments. Congress earlier this year extended the statutory debt limit to $31.4 trillion. However, the weak economic fundamentals and overflowing expenditures mean that the US will be breaching the limit. Consequently, Congress has been engaged in a fierce tussle to raise the limit. According to US Treasury Secretary Janet Yellen, even the extraordinary measures, if implemented will only buy the government a limited amount of time. "It is therefore critical that Congress act in a timely manner to increase or suspend the debt limit. Failure to meet the government's obligations would cause irreparable harm to the US economy, the livelihoods of all Americans, and global financial stability," warned Yellen earlier this year. WATCH | US debt ceiling crisis: President Joe Biden cancels post-G7 Asia tour × With the Senate under the control of Democrats and the House in Republican hands, it is highly unlikely that a straightforward limit hike will be possible. If the congressional lawmakers cannot make a decision quickly, the world's largest economy could risk defaulting on its debt. (With inputs from agencies) WATCH WION LIVE HERE:

US debt ceiling: Democrat lawmakers ask Biden to use ‘14th Amendment’ to evade debt default

US lawmakers come to a deadlock on US debt limit talks, they are yet to resolve the crisis. President Joe Biden and Republican leaders offer hopes of a deal while Democrats pitch for a clean increase, with no strings attached. Will Biden use 14th Amendment to raise debt ceiling unilaterally?

US debt ceiling crisis: President Joe Biden cancels post-G7 Asia tour

As US lawmakers come to a deadlock on US debt limit talks, they are yet to resolve the crisis. The US Deputy Treasury Secretary is the latest to appeal for a solution to the ongoing standoff. On the other hand, President Joe Biden and Republican leader Kevin McCarthy will meet again on Tuesday with hopes riding high for their meeting.

US debt limit deadlock spooks investors while Joe Biden is hopeful of a deal on debt ceiling

The US debt limit standoff makes the world nervous as IMF asks the Republicans and the Democrats to come to a consensus as delaying it would lead to serious consequences especially is US ends up defaulting. It might further lead to higher interest rates and broader instability.

IMF: Serious consequences if the US Lawmakers don't reach consensus on US debt limit

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US is nearing its debt default deadline. What is its impact on Indian economy?

US debt ceiling: Democrat lawmakers ask Biden to use ‘14th Amendment’ to evade debt default

US debt ceiling crisis: President Joe Biden cancels post-G7 Asia tour

US debt limit deadlock spooks investors while Joe Biden is hopeful of a deal on debt ceiling

IMF: Serious consequences if the US Lawmakers don't reach consensus on US debt limit