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Wednesday, July 24, 2024

The US faces a debt default risk as its economic woes continue

Story by Owen Mandovha

THE United States economy finds itself in a precarious position as it faces a debt implosion that further entrenches the waning fortunes of the US dollar as a global reserve currency.

As the global geo-political tensions continue to play out, the United States of America is slowly losing its grip as a global superpower, with its political and economic hegemony being slowly challenged.

What started as a mini-banking crisis that magnified the troubles of the American economy has stretched to an impending default risk, whereby the Republicans and Democrats in the House of Representatives are flirting with voting to approve a bill to raise the debt ceiling on the back of a drop in tax revenues by about 30 percent.

Economist, Mr Kevin Tutani has carefully read into the unfolding situation arguing that the US finds itself in a precarious debt situation.

“The US finds itself in unchartered territory whereby its debt to GDP ratio is at 125 percent whereas the IMF standard threshold is 120 percent. The reason why the economy is cushioned is because of the excess dollars circulating in the world as it is used as a reserve currency. However the situation is precarious for the economy that used to be the might,” he said.

While the debate continues to drag on regarding the waning fortunes of the US dollar as a reserve and reference currency, former US Secretary Of State Hillary Clinton made a grim warning of the default risk and its impact on the relevance of the US dollar.

The position has equally been shared by local Economist Dr Prosper Chitambara who stressed that the US dollar is at the receiving end of shifting global trends, where the United States can no longer dictate world affairs.

“Major global superpowers are moving away from trading in the US dollar given the reigning global political tensions which is expected to discard it as a reference currency.  These dynamics coupled with its local economic woes are letting slip the grip of the dollar in global economic affairs,” he said.

As billions of US dollars have been pumped to cool off the heat of the banking crisis and to finance the supply of weapons in support of Ukraine in its conflict with Russia, this has inevitably left a crater on the US books giving credence to claims that the US dollar is teetering on the brink of global irrelevance.

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