Powerful nations have a responsibility to safely avoid situations that would strike a blow to the world economy. We hope for the speedy passage and establishment of necessary measures.
Regarding the U.S. federal government’s debt ceiling, President Joe Biden and opposing Republican, Speaker of the House Kevin McCarthy, agreed to a suspension of the ceiling, which will be in effect until January 2025.
If the relevant law is established,* it will mean that the government will be able to borrow without any limit during that period.
In January of this year, the U.S.’ remaining debt balance reached the upper limit of about $31.4 trillion (approximately 4,400 trillion yen).
If the debt ceiling is not raised by June 5, the U.S. might fall into default on its debt for the first time in history, possibly incurring a worldwide recession.
The bill is expected to be voted on by May 31. If it is approved and Biden signs it, it will become law. It can be said that a path to prevent a crisis is in sight.
But the bill’s outcome will depend on how much support both Biden and McCarthy can gather from within their parties. The question is, can they demonstrate leadership ability?
According to the agreement between the administration and the Republican Party, spending for the 2024 fiscal year (October 2023 through September 2024) will be held to the same level as for 2023, except for defense spending, and employment requirements for low-income earners to be eligible for support will be stricter.
It can be said that the bill is a compromise that the main factions of both parties can agree upon.
However, during the negotiation process, Republican hardliners close to former President Donald Trump (known as the MAGA faction) sought to prevent a compromise, and the radical left progressive faction called on the Democrats to reject Republican demands for spending cuts. There is a chance of criticism of the compromise from both parties.
In both the House of Representatives and the Senate, there is not a big difference between the number of seats held by the Democrats and the Republicans.
The difficult negotiations also affected the Biden administration’s diplomacy.
There was concern that Biden might not be able to travel to Japan for the beginning of the G7 Hiroshima Summit, and he ended up having to excuse himself during the conference in an impressive display of flexibility.**
Trips to Papua New Guinea and Australia were also canceled, and plans to drive a nail into the relationship with China, which has a growing influence in the region, were thrown into disarray. The move has drawn harsh voices from leaders of several Pacific nations.
As the next presidential election draws near, antagonism between the two parties is expected to intensify. For the sake of the international community’s stability, it is critical that the division in the U.S. Congress does not deepen.
On May 29 at the Tokyo Stock Exchange, buying expanded due to favorable feelings about the debt ceiling agreement, and the Nikkei Stock Average surpassed 31,200 yen, the highest level in 33 years. However, a sense of uncertainty remains about whether the bill will pass, and the upward momentum did not continue.
The bill’s outcome will have a significant impact on the Japanese economy, which is trending toward recovery. We want to carefully observe this movement without negligence.
*Editor’s Note: The Fiscal Responsibility Act of 2023 was signed into law on June 3 and averted the debt ceiling crisis.
**Translator’s Note: The implication here is that Biden had to be flexible during the G7 conference to deal with both the summit and the debt ceiling crisis at home.
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