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US debt ceiling crisis exposes global economic vulnerabilities

01-Jun-2023 by Charan Singh

The recent fiscal developments in the US have some very important lessons for the rest of the world. The US government came perilously close to defaulting on critical payments because of brinkmanship by Congress Republicans. The US debt ceiling has been discussed numerous times in the last 106 years, and the ceiling has been raised more than 100 times since it was first imposed in 1917. In the US, especially after the collapse of Lehman Brothers in 2008, the debt-to-GDP ratio has significantly increased.

The gross fiscal deficit of the US is also high. According to the Maastricht Treaty, the prudent limits of debt and deficit to GDP should normally not exceed 60% and 3%, respectively. In the US, the debt-to-GDP ratio stood at 121.7% and the deficit is 6.3% of GDP in 2022.

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