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What is the risk of the United States defaulting?

18 May 2023
In recent times, the subject of utmost concern and extensive deliberation revolves around the potential risk of a default on the United States federal debt. The esteemed US Treasury Secretary, Janet Yellen, has issued a cautionary statement emphasizing the urgent need to promptly address the matter by raising the current debt ceiling of $31.4 trillion. Failure to take timely action could lead to a distressing scenario wherein the US government might find itself in default on its debt obligations as early as June 1st. Indeed, I extensively addressed this very topic back in February 2023 in my article titled "Can the United States Really Continue to Raise Interest Rates in 2023?" I would highly recommend referring to that specific article for a detailed analysis and insights regarding the subject matter at hand. “First and foremost, it is essential to acknowledge that the United States' national debt has once again reached its ceiling. The convergence of a substantial national debt and elevated interest rates entails considerable interest expenses, thereby amplifying the fiscal strain on the United States and exacerbating its already precarious debt situation. Secondly, the Federal Reserve has commenced the implementation of contractionary measures, encompassing both interest rate hikes and bond sales, thereby causing a notable reduction in market liquidity. Persisting with the course of raising interest rates not only fails to effectively cool down the high inflation but also poses a significant financial risk to the United States, wherein the disadvantages outweigh the advantages.

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