The latest U.S. debt-ceiling saga has shaken the global economy, exposing flaws in U.S. politics and fiscal policy, a Thai banker has said, warning governments and investors around the world to be alerted.
“The saga over the raising of the U.S. debt ceiling has been brewing for some time. Regardless of what bill that the U.S. Congress adopts eventually, the global economy has already been significantly impacted,” Wichai Kinchong Choi, senior vice president of leading Thai bank Kasikornbank, said in a recent interview with Xinhua.
U.S. President Joe Biden signed the Fiscal Responsibility Act of 2023 into law on Saturday to avoid a historic default on government debt.
The bipartisan act suspends the public debt limit through Jan. 1, 2025 and increases the limit to the actual debt level on Jan. 2, 2025.
Since 1945, the United States has raised its debt ceiling 103 times.
The periodic U.S. debt crisis typically features the Republicans and Democrats bickering for their self-interests, which causes concerns and unease in markets, said Choi.
“It’s clear that the intense partisanship is increasingly politicizing the issue,” he said.
Although the U.S. Congress has agreed on the bill to raise the debt ceiling at the last minute to avoid a debacle, the measures taken by the U.S. government in response to the crisis have, to some extent, already indicated signs of deterioration in the country’s fiscal position and difficulties in revitalizing its economy, said Choi.
According to the banker, raising the debt limit is but a short-term fix. The root cause lies in the severe U.S. fiscal imbalance and budget deficit coupled with the reliance on the U.S. dollar hegemony to implement ultra-loose monetary policies in the face of economic crises.
The U.S. government bonds have long been considered a safe asset, but investors’ confidence has been affected by the repeated debt crises which erode the creditworthiness of the U.S. government and the value of dollar assets like Treasury Bonds, said Choi, pointing out that some agencies in Thailand have advised investors to consider selling dollars, Treasury Bonds, and U.S. tech stocks to mitigate investment risks.
He opined that the U.S. debt crisis further exposes the harm of dollar hegemony. In recent years, many businesses in countries like Thailand have begun to adopt “de-dollarization” methods in international trade due to the fluctuations of the greenback, the slump in the U.S. economy as well as potential political risk.
Following the outbreak of the Ukraine crisis, the United States and the West have implemented sweeping financial sanctions against Russia, excluding Russian banks from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) system.
The weaponization of the dollar has compelled countries to seek a reduction in their dependence on the currency and establish a financial settlement system that is efficient, low-risk, and not subject to the whims of the U.S. financial system, said Choi.
“The U.S. debt crisis has made people wary of the U.S. dollar and Treasury Bonds. Such awareness has prompted many countries to begin reassessment. The current situation requires governments to develop a risk management system that caters to themselves and choose effective risk mitigation tools,” he concluded.
