If the debt ceiling isn't raised before then, the government would stop paying its many obligations on time, dealing a terrible blow to the economy and potentially force the U.S. into a recession. It could undermine the confidence of consumers, financial markets, and businesses.
Today, a government that defaults may be widely excluded from further credit; some of its overseas assets may be seized; and it may face political pressure from its own domestic bondholders to pay back its debt. Therefore, governments rarely default on the entire value of their debt.
The countries issue bonds in exchange for the debt. However, owing to an insufficient cash inflow, the country often fails to pay back the principal amount as well as the interest amount of the loan to domestic or international creditors as well as organizations like the International Monetary Fund (IMF).
The five ways out of the Debt Trap are (1) let the economy grow the country out of the trap, (2) default and repudiate the debt, (3) print money to pay for it, (4) raise taxes and/or reduce expenses ...
The PIIGS countries—or Portugal, Italy, Ireland, Greece and Spain—are on everyone's watch list as being the most in the risk of sovereign default. And yes, some of them have been in some pretty hot financial water in the last decade.
“The federal government's interest payments are expected to grow from 0.9% of GDP to 1.7% over the next 10 years,” it said. According to the institute, keeping debt stable would save taxpayers about $10bn a year in interest payments alone by 2033 – almost the entire higher education budget.
One of China's largest-ever debt restructurings is starting to take shape. China Evergrande Group was declared to be in default in late 2021, the highest-profile casualty of a broader crisis in the country's property industry.
At the end of 2021, of the 98 countries for whom data was available, Pakistan ($27.4 billion of external debt to China), Angola (22.0 billion), Ethiopia (7.4 billion), Kenya (7.4 billion) and Sri Lanka (7.2 billion) held the biggest debts to China.
The term was coined by Indian academic Brahma Chellaney to describe how the Chinese government leverages the debt burden of smaller countries for geopolitical ends. Other analysts have described the idea of a Chinese debt trap as a "myth" or "distraction".
In truth, your debt doesn't magically disappear when you move, but debt collection does become more challenging for issuers if you leave the country. Because of each country's unique credit systems and regulations, it can be difficult for creditors to track you down.
A low level of debt shows less reliance on foreign borrowings. The best example can be taken from Hong Kong (it is a one of the debt free countries), whose economy has the least debt to GDP ratio. It is an almost debt free country. It has a well-regulated financial system and large foreign reserves.
Japan - Debt: 221.32% of GDP
Japan's debt-to-GDP ratio is the highest in the world due to a prolonged period of economic stagnation and demographic challenges.
Can I Leave the Country If I Have Debt? Legally, there is nothing stopping you from leaving the country if you have debt, unless the Australian Taxation Office (ATO) issues a Departure Prohibition Order (DPO) against you.
In particular, we now identify five countries as being at most risk of default in 2023: El Salvador, Ethiopia, Maldives, Pakistan and Tunisia (our list previously also included Ghana to make six countries, but this has since entered default).
The Fed tries to influence the supply of money in the economy to promote noninflationary growth. Unless there is an increase in economic activity commensurate with the amount of money that is created, printing money to pay off the debt would make inflation worse.
China's outstanding foreign debt, including US dollar debt, reached US$2.29 trillion at the end of September in 2020, up from US$2.13 trillion at the end of June, according to China's State Administration of Foreign Exchange.
China's debt overhang far exceeds the burdens facing the United States. As recently as 2020, total debt in the United States relative to GDP exceeded China's. But as of mid-2022, China's relative debt burden stood 40 percent higher than America's.
China has become Africa's biggest bilateral lender, holding over $73 billion of Africa's debt in 2020 and almost $9 billion of private debt. This increased lending to the continent has drawn significant attention and criticism. Accusations of debt trapping have been a critical feature of the Sino-African relationship.
Overall, foreign countries each make up a relatively small proportion of U.S. debt-holders. Although China's holdings have represented just under 20 percent of foreign-owned U.S. debt in the past several years, this percentage only comprises between 5 and 7 percent of total U.S. debt.
U.S. debt offers the safest heaven for Chinese forex reserves, which effectively means that China offers loans to the U.S. so that the U.S. can keep buying the goods China produces.
The countries with the biggest debt burdens in relative terms were Djibouti and Angola, followed by the Maldives and Laos, which opened a debt-laden railway line to China last year. The President of the World Bank, David Malpass, has called the level of debt “unsustainable” that many countries once again hold.
About a third of China's major cities are struggling to pay just the interest on debt they owe, according to a survey by Rhodium Group, a New York-based research firm. In one extreme case, in Lanzhou, the capital city of Gansu province, interest payments were the equivalent of 74% of fiscal revenue in 2021.
If China called in all of its U.S. holdings, the U.S. dollar would depreciate, whereas the yuan would appreciate, making Chinese goods more expensive.