Little by little, the day the US hits the debt ceiling is getting closer. Analysts expect this to happen on June 1. “Then the finance ministry will run out of money,” says macroeconomist Edin Mujakic. Negotiations to raise that ceiling are still ongoing. Participants in those consultations call the talks ‘production’, but Mujajic doesn’t believe that. “It’s usually a word you use when you have something to say, but you won’t admit anything.”
‘With some scrapping, America can get paid’
But time is running out for them, says Mujakic. ‘Once you sign the agreement, Parliament approves it and the President signs it, you need 4.5 working days. Coincidentally, next Monday is a holiday in the US. The representatives then have a short break. But if there is a deal, they have to rush back to parliament to vote on it. That would be a huge logistical undertaking.’
Podcast | America is slowly approaching financial disaster
‘Only 1 day left in America’
What Mujajic is trying to emphasize is that the US only has one net day to reach a deal. “If there is no deal tomorrow, it will be very difficult to meet the June 1 deadline.” There’s still a way, the economist sees. “With a little bit of scrapping, America can get money. Next week, American companies have to submit their second-quarter income tax returns to the Treasury Department. So that’s going to get some money.’
Also Read | ‘I think it’s premature to say a disaster is imminent’
That’s fortunate, Mujakic sees, but America also has its own bills to pay. The good thing about this crash is that the next US interest payment on the loan is on June 15. So without technically becoming insolvent, we can extend it to June 15. Mujakic describes the conditions as ‘a circus’.
‘Interest goes up’
However, the problems for America did not end there. Credit rating agency Fitch has warned that the country could lose its top credit rating (AAA) if the debt ceiling is not raised. If the debt ceiling is hit, the US will be labeled a defaulter because it cannot pay interest. The US will also make it harder to make new investments. Mujakic says it would be “bad news” for the US if Fitch revised the rating. ‘You can still take out loans, but at higher interest rates.’
Also Read | United States Bankruptcy: ‘It Shouldn’t Happen’