golden lion
Today On May 12, the G-7 developed countries reflecting in Tokyo on the international economy affected by the pandemic and the Ukraine war will focus on the situation created by America’s failure to pay its national debt installments. Not only in this meeting of G-7 Finance Ministers and Presidents of National Banks in Tokyo, this issue may also remain important in the G-7 summit to be held in Hiroshima next week. This is a matter of concern for India as well and there are solid reasons for this.
- Today, even big and small Indian companies have an investment of more than 40 billion dollars in America.
- The US is India’s largest trading partner and largest export destination.
- The thing is that if America’s Republican Party-majority Congress does not agree to increase the current 31.4 trillion US debt limit by the end of this month, then for the first time in history, America may be declared unable to repay its loan installments. Will go
- Last Tuesday, after talks with the US parliaments, President Joe Biden clearly said that if this conflict is not resolved soon, he will not be able to attend the Hiroshima G-7 summit.
- America is the world’s largest and interconnected economy. That’s why this economic crisis can affect not only the life of America but also the economy of the whole world.
- If the loan limit is not increased, along with loan installments, salaries of government employees and other welfare schemes in the US may also be affected.
there has been a conflict before
Due to the conflict over the debt limit, the nervousness of the countries and companies investing in America has increased. Most of the investment in these has come from G-7 countries only. Besides them, China accounts for the second largest share of the US national debt. China is the second largest economy in the world today. In a few years, it is estimated to become a bigger economy than America. In such a situation, when the G-7 countries want to balance the production and supply chains of the world, which are heavily dependent on China, and want to tighten the economic sanctions on China and Russia for their increasing involvement in the Ukraine war, then America’s debt The scenario of failure to repay becomes their weakness. This can have an impact on global trade and can be seen at many levels.
- The US dollar may weaken if the US fails to pay the loan installments from June 5.
- This will not only affect America’s creditworthiness badly and create upheaval in its stock market, but the prices of things in the world market can also increase rapidly. In particular, the price of gold, which is considered the standard of currency value in all countries, may rise.
- For India, rising prices and rising energy imports from China could be a cause for concern.
By the way, it is expected that the leaders of the Republican and Democratic parties of America under the leadership of President Biden will resolve this conflict in time. This is also possible because this is the third such clash in the last decade and every time politics has been behind it. This time too, the Republican opposition is trying to cut some welfare schemes benefiting Biden before the presidential election. In 2011, the party was successful in getting some welfare programs cut by the Barack Obama administration. There was a lot of criticism of Obama then. The credit worthiness of the US was also downgraded. Although it did not have a significant impact on America’s credit availability. Even today America’s credibility may be affected, its economic system will not be affected much. But this will create an imbalance in the global market, which can have an impact on other countries.
investors choice
America is the country in the world where the maximum investment is made every year. In the year 2021 it was about 5 trillion dollars. America’s total debt today has reached 133 percent of its GDP, but no one considers it a weak or failing economy. For example, the total debt of China and India is 45 and 19 percent of their GDP, respectively, but this is often cited as a cause for concern. This means that the countries of the world understand their advantage in giving loans to America and investing there. But the over-confidence generated due to this reason can create many unexpected challenges for the world if America fails to repay the loan installments.
(The author is visiting professor at the University of British Columbia and professor at JNU)
Disclaimer: The views expressed above are the author’s own.