Washington budget crisis hits White House foreign policy
Biden is being forced to drastically cut his Pacific tour. He has cancelled a trip to Australia, where the QUAD leaders were due to meet. There will be no visit to Papua New Guinea, with which, for the first time in the history of the United States was expected to sign a military treaty.
Source: RBC
Biden’s regular meeting with Congressional representatives did not result in much progress. The Democrats stubbornly refused to make any meaningful cuts in government spending. Republicans, on the other hand, have outlined their “red lines” – they aim to cut spending by at least $100 billion this year to at least moderate the budget deficit growth. True, it could reach $2 trillion anyway.
Representatives of the 150 biggest US banks and corporations have sent an open letter to Washington. They urge not to lead the situation to default, which would lead to disastrous consequences and undermine the financial dominance of the U.S. in the world.
The threat of default is also causing obvious jitters amongst US allies – holders of US treasury securities. In case of default, Japan, Britain and the EU countries, which hold trillions of dollars in U.S. bonds, would be hit particularly hard. China, too, would be hit – it holds another $800 billion in U.S. debt.
Attitudes towards the US are based on the belief that the US economy is stable and that its political system is functioning well. Default will show that the economy is unstable and the political divide has reached the point where Congress and the White House can’t even agree on a budget. So in the event of a default, the damage to the US reputation will be such that it will be long and hard to repair.
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