The United States’ extension of the debt limit until December could put global financial markets, including those of China, in a zone of temporary safety, experts said, although the possibility of a global financial default is not entirely ruled out in the short term.
They also noted that massive US debt has now become a sword of Damocles in global financial markets with a high chance of default. This weakens the role of US debt and the dollar as a safe haven for global financial assets.
The comments were made on Wednesday after US Senate Minority Leader Mitch McConnell offered Democrats a deal to raise the US debt ceiling until December to avoid a national default and economic crisis. The offer came after both sides engaged in what foreign media called “a chicken game” to raise the debt ceiling.
On Tuesday, US Treasury Secretary Janet Yellen reportedly said she believed the US economy “would go into recession” if the federal government’s borrowing limit was breached, according to a CNBC report.
Experts have said that US bonds, once a preferred investment target for global investors, are increasingly becoming a risk for international markets.
“If the American parties fail to agree on raising the debt ceiling, the United States will have difficulty repaying its bonds, which could cause a global financial crisis, such as a collapse in stocks and the fall of financial derivatives, “said Xi Junyang, professor. at the Shanghai University of Finance and Economics, the Global Times said Thursday.
Xi also said that a default would also prevent many international companies from collecting or repaying their debt, which in turn would be a blow to the global economy, adding that “China’s economy will also be affected, sure”.
However, Xi anticipated that US politicians could eventually come to an agreement on the issue of the bond cap. “The consequences of not increasing the debt limit are too severe,” he said, noting that extending the debt limit until December would give the United States some time to decide on the magnitude of the increase.