The world needn’t suffer due to US brinkmanship
SummaryIt is a relief that America’s debt ceiling impasse seems broken, but there is no reason for the world to be pushed to the edge, and perhaps it is time to think of ways of mitigating its risks
The great game theorist Thomas Schelling wrote during the Cold War years about how it was sometimes rational to behave irrationally. More than five decades later, the US Republican Party seems to have played the brinkmanship game to its advantage. It has pushed the US government dangerously close to a default. President Joe Biden has now signed off on a spending freeze in many areas in exchange for a tentative deal to increase the US debt limit for two years. The crisis does not end till US lawmakers formally back the deal struck over the weekend. Both the debt ceiling as well as outstanding US public debt are at $31.4 trillion right now. This means the US government will not be able to borrow any more money unless the legal debt ceiling is increased in the next few days. The risk of a US debt default has cast a long shadow over financial markets around the world, though investors are breathing a bit easier now. This is not a new situation. US lawmakers have increased the debt limit 78 times since 1960. The problem is that such bipartisan agreements are becoming increasingly difficult to hammer out, given the divisive nature of contemporary American politics.