How US Debt Default will impact common Americans? Explained

For the first time in its history, the United States of America could default on its debt starting from June 1 and it is being termed as 'US debt default'

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'All is not well' in the biggest economy of the world- the United States of America as the sword of 'debt default' is looming over the Joe Biden administration. For the first time in its history, the United States of America could default on its debt. The Joe Biden administration is running out of cash and it will totally 'debt default' starting from June 1 if Congress does not nod to increase the ceiling of the US debt. For the unversed, the debt ceiling is the maximum amount of money Congress allows the US federal government to borrow in order to pay the bills, Debt default occurs when the government spends more money than it collects taxes. Therefore, it must take out its debt in order to pay its expenses. The seriousness of the issue is such that US President Joe Biden held a high-profile meeting with Congress in order to persuade them to allow the increased debt ceiling. However, the US Congress does not only have Democrats but also Republics who are expected to play hardball. If Biden could not woo Congress then the US Treasury will run out of cash and it won't be paying the nation's bill in a major global humiliation.

As of now, the US Debt ceiling is $31 Trillion which the country has already spent. Therefore, Team Biden wants to increase this limit. Notably, the US federal government cannot simply borrow the money from treasure, it needs Congress' nod. It is pertinent to mention here that US Treasury has written a letter to Congress saying that if the ceiling or cap is not increased then the country will face debt default starting from June 1. Notably, Wall Sreet, Banks, and Investors are already preparing for the debt default and are preserving cash in order to come out of it safely.

It is pertinent to mention here that multiple Banks in America have already collapsed namely- First Republic Bank, Silicon Valley Bank and Signature Bank. Now, the question arises if the United States of America indeed goes into debt default, then how will it affect the common people of the US? Let's know in detail below-

How US debt default will impact common people?

An American news portal quoted Samantha Sanders. She's the director of government affairs and advocacy at the Economic Policy Institute who explained how will US debt default will impact the common people. As per Samantha, if the federal government could not reach to a deal to increase the ceiling, then the US will runout of cash and it will be catastrophic for the US economy.

Among the first who will be impacted by US debt default will be Americans who are receiving salary or pensions from the US government. For instance, military personnel, veterans of army getting pensions, federal employees and even people with disabilities getting money from government-funded programs will stop getting paid. Not only this, but subsidies on housing loans or SNAP for food stamps will also be nullified and from there a ripple effect will begin.

Goldman Sachs, which is among America's biggest banks stated that if the US debt default turns into a reality then one-tenth of all economic activity would stop as reported by NPR. Following that Americans with low or medium income range will bear the burn of US debt default. As the US debt default will start a ripple effect, the lower or middle-class families will cut down spending and that will hamper the US economy much more. This will also result in a delay in payments by the US treasury. As a result, it is expected that the US market share will take a nosedive, and therefore housing wealth will be wiped out. This is ultimately give rise to the recession which many big tech and other firms are fearing and due to the mass laying off of people from the year 2022.

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Samantha further stated that in such a scenario, more layoffs will come and thousands of people will lose their jobs which will hike the unemployment rate of the United States of America.

It is pertinent to mention here that US President Joe Biden in an interview before the Congress meeting had stated that he is optimistic that he will be able to strike a deal with Congress in order to pull America out of the debt default.

Billions of aid to Ukraine amid US debt default

Well, the answer is reportedly yes. As per February 2023 report, Since 2014, the United States has committed more than $27 billion in security assistance to Ukraine and more than $24.2 billion since the beginning of the Russia-Ukraine war. Apart from this, US has time to time send military aid to the war-hit nation as well. As per Kiel Institute for the World Economy, since the war began, the Biden administration and the U.S. Congress have directed more than $75 billion in assistance to Ukraine, which includes humanitarian, financial, and military support. Now the question arises whether funding Ukraine with billion of dollars have crippled default debt of the United States? Well, the answer is still awaited.


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