Raising the Debt Ceiling Won't Solve the Us Debt Crisis

The bill introduced in line with the agreement between President Joe Biden and the opposition Republican Party to increase the government debt limit in the US has passed its first hurdle.

This bill was passed in the House of Representatives, the lower house of the US Congress (Parliament). However, the House's vote also revealed a great deal of dissatisfaction on both sides.

Presented with the consent of both the Democratic and Republican parties, 314 members voted in favor of this bill. However, 117 members of both parties voted against it.

The agreement on raising the debt ceiling was reached between President Biden and Republican House leader Kevin McCarthy. Under this, Biden agreed to reduce spending on public welfare schemes and green energy projects. This has angered the Progressive (progressive) section of his party.

The far-right faction of the Republican Party complains that McCarthy agreed to support a bill to raise the debt ceiling by less than the Biden administration should have cut spending.

This bill will be presented in the Senate. According to observers, a large number of members who will oppose it. Nevertheless, there is every chance it will pass. But experts say that America's debt crisis is unlikely to go away despite the opening of new loans for the government.

There is a possibility that the credit rating agencies may still downgrade the US debt. The reason for this is the weakening faith of the people in the US government's ability to repay its debts.

At present, market experts are apprehensive that as soon as the bill to increase the debt limit is passed by both the Houses, the Federal Reserve of America will issue a large number of bonds to meet the reduced amount of cash with it.

If the expected queue of buyers for those bonds does not form, they will have to be sold at a higher rate of interest. This will reduce America's financial credibility on the one hand, and on the other hand the burden of paying more interest will be on the US government.

George Catrambon, head of the fixed income division at financial firm DWS Group, told CNN that issuing new bonds will make economic conditions tougher. Bond interest rates will remain high for the foreseeable future.

Critics have said that under this agreement, the US government will be able to take unlimited loans for the next year and a half. This will further derail the goal of improving fiscal health.

The loans taken now will have to be repaid in the future and the interest burden on the government will increase. All these situations further weaken America's financial credibility.