The United States is facing an impending financial crisis if nothing is done about the debt ceiling. American politicians are arguing over the debt ceiling. U.S. Treasury Secretary Janet Yellen warns of the severe consequences of not raising the debt limit. Experts also indicate that not raising the debt ceiling could have significant consequences, even in the Netherlands.
 

U.S. Debt Ceiling

The United States debt ceiling, also known as the debt ceiling, is the statutory limit on the allowable amount of U.S. national debt. Once this amount is reached, all non-essential activities must be immediately halted.
 
The U.S. federal government is currently allowed to borrow a total of $31.4 trillion, which is roughly €29,000 billion. Since this ceiling was established in 1917, it has been raised regularly, for example, due to inflation. On a few occasions, there were short periods when a "government shutdown" occurred. In April 2011, this even led to a crisis that was ultimately averted. In 2013, as the United States faced a budget crisis, there were warnings that a debt crisis could also arise, but this was also avoided at the last moment.
 

Impending Financial Crisis

Janet Yellen warns that not raising the debt ceiling could lead to an unprecedented economic crisis. Moody's Analytics predicts that not raising it will cost millions of jobs and negatively impact the global economy.
 

Consequences

According to U.S. economist Philip Marey of Rabobank, not raising the debt ceiling will also negatively affect the Netherlands. When U.S. government employees go without pay for a time and benefits are not paid, consumers in the United States will have less purchasing power.
 
In addition, confidence in the economy will decline among Americans who do continue to receive their salaries. Marey expects that they will also spend less, which will mean that the Netherlands will be able to export less to the United States.
 

Stock Prices

Lower consumption in the United States will also affect the profits of U.S. companies. This will have a negative impact on stock prices, including in the Netherlands. After all, investors keep a close eye on the U.S. stock market, which is still the largest in the world.
 
Falling stock prices will further erode consumer confidence and, consequently, their spending, according to Marey.
 

Financial System

If bondholders (companies, governments, and individuals who have lent money to the United States) are no longer paid, there will be a real problem. Credit rating agencies will immediately lower their rating for U.S. government bonds. This rating indicates how creditworthy the U.S. government is.
 
A lower rating will bring the entire financial system to a halt, fears RTL Z stock market commentator Jacob Schoenmaker. The U.S. national debt has a major impact on financial markets, as the U.S. dollar is still the world's most important currency, and U.S. government debt is more frequently used as collateral for financial transactions than any other national debt.
 
If U.S. national debt is no longer used as collateral in financial transactions, cash will need to be used instead. "And to free up that money, investors will then sell other investments, such as stocks or Dutch government bonds," according to Schoenmaker.
 

U.S. Senate Approves Increase

On Thursday evening, a majority of U.S. senators voted in favor of raising the U.S. government's debt ceiling. This prevented the United States from failing to meet its payment obligations for the first time in history. The crucial vote took place just four days before the deadline.
 
Now that the Senate has also approved, the next vote on the debt ceiling will not be needed until after the U.S. presidential election in 2024.
 
Biden tweeted on Thursday evening: "No one gets everything they want in a negotiation, but make no mistake: this bipartisan agreement is a big win for our economy and the American people." He added that he will sign the bill as soon as possible.
 
Disclaimer: The Silver Mountain does not provide investment advice, and this article should not be considered as such. Past performance does not guarantee future results.