In case you haven’t heard, the United States is in the middle of a perilous debt-ceiling showdown. Congress needs to expand the amount of money the US can legally borrow, but Republicans and the Biden White House can’t agree on the terms.
That is pushing America closer and closer to the date of default, which means America won’t be able to pay its bills. That would, as you’ve also probably heard, cause economic pandemonium in the United States, but also abroad, potentially triggering a global financial crisis and recession.
Sounds bad — because it is. The US political dysfunction will engulf the rest of the world because America anchors the global financial system. US Treasury bonds and the dollar have traditionally been seen as risk-free. If the US defaults, they won’t be that reliable any longer — but that readjustment can’t happen overnight, either.
The US is already starting to look like a much more chaotic bet. And if America defaults, that could accelerate and have profound implications for the United States’s global influence. US power and geopolitical leverage have very much to do with its financial dominance. It’s how the US can wield sanctions to punish Russia for its Ukraine invasion, or North Korea for its nuclear weapons program. Suddenly, the world looks very different if, say, central banks start buying up more reserves of euros or Chinese renminbi.
To be clear, the world is nowhere near that yet, but as Marcus Noland, executive vice president and director of studies at the Peterson Institute for International Economics said, a US default “gives that process a nice shove.”
Vox spoke with Noland about what we’re actually talking about when we talk about a US debt default causing a global crisis, and what some of the longer-term implications of that might be for America and the rest of the world.
The conversation, edited and condensed for length and clarity, is below.
Jen Kirby
When we talk about a possible US…
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