US debt-ceiling crisis may set off de-dollarisation of global trade

AMERICAN politicians are once again playing the game of chicken with the country’s debt ceiling. Late last week (Jan 19), Washington’s debt limit of US$31.4 trillion was reached.

A bipartisan group of US lawmakers hope to present a plan to change the ceiling from a fixed amount to a percentage of national economic output. In the meantime, the stand-off continues and the US Treasury is resorting to a financial sleight of hand to avoid a default immediately.

The US government’s debt limit was introduced in 1917 as a way for the US government to quickly raise funds for World War I. This measure also gave Congress the power to check how that money is spent. Over the years, American politics has become increasingly polarised. In 2011, Congress forced the Obama administration to make budget cuts of US$900 billion to enable debt to be raised by a similar amount.