In all probability, the US will avoid a default, as neither the Democrats nor the Republicans can afford it, especially because of the Presidential elections due next year.
But, as current public debt is already 129% % of its GDP ( as of March 2022), one wonders if a further hike in the same, due to a another hike in it's debt ceiling (79th hike in 63 years) will be negating all efforts of US Fed in combating inflation? Simple textbook economics suggests, that a higher fiscal deficit leads to higher inflation, followed by depreciation of the local currency, in this case the US Dollar.
Now, if the Republicans want a compromise formula, to keep the public debt under control, one can only hope such a compromise will not have it's cascading effects on the US economy in general, and the world economy as a whole.
But, a billion dollar question, that begs an answer is that, "What is the highest level to which US's debt to GDP ratio reach, without significantly damaging it's economy, as well as the confidence in the stability of US Dollar to serve as the world's reserve currency?"
A corollary to the above question is that , "How can the lawmakers focus on substantially increasing the denominator, that is the GDP, thereby keeping the overall percentage of Public Debt to GDP well under control?"
Answer to these questions, could be the "real deal-makers" between President Biden and the Republicans, and also set the tone for next year's Presidential elections.
