US debt dispute overshadows G7 finance chiefs’ summit

An impasse in Washington over extending the U.S. debt ceiling dominated a G7 finance chiefs’ conference opening on Thursday, intensifying U.S. recession worries as central banks seek a gentle landing for the global economy.

President Joe Biden urged Republican legislators on Wednesday to boost the government’s borrowing ceiling from $31.4 trillion or face a recession in the world’s largest economy.

After three U.S. regional banks failed, Treasury Secretary Janet Yellen was due to answer questions with her G7 counterparts in Niigata, Japan, on how Washington plans to calm financial markets. A default would jeopardize our epidemic recovery progress. On Thursday in Niigata, Yellen warned that it would cause a worldwide recession.

Japan, this year’s G7 chair and the world’s largest U.S. debt holder, is concerned about the debt problem. “We won’t go into such specific subjects,” Japanese Finance Minister Shunichi Suzuki told reporters on Thursday.

Suzuki said the G7 finance officials will discuss how to reduce financial system risks by learning from recent U.S. bank collapses.

“The G7 won’t be able to solve what is a purely domestic and political U.S. problem, though the group could reaffirm its resolve to cooperate in stabilizing markets in the worst-case scenario,” said Nomura Research Institute analyst Takahide Kiuchi.

Washington alone must fix this. When things go wrong, other nations pay.”

G7 finance ministers and central bankers will likely discuss global economic threats including rising inflation and the consequences of aggressive U.S. and European interest rate rises. Yellen said the global economy was in a “better place than many had predicted six months ago” with inflation reducing in several G7 nations, including the US.

China, the world’s second-largest economy, has exhibited symptoms of weakening despite the Federal Reserve’s quick rate rises. On Thursday, statistics revealed that China’s consumer prices climbed at the weakest pace in more than two years in April, while factory gate deflation intensified, shattering authorities’ expectations that a demand resurgence would boost the global economy.

The G7 finance meeting will also discuss strengthening the global financial system, preventing Russia from circumventing sanctions over its invasion of Ukraine, and diversifying supply chains away from China through partnerships with low- and middle-income nations. Past U.S. debt ceiling disputes have concluded with a last-minute deal to prevent a default.

The first U.S. credit rating drop occurred in 2011. Political divisions make the current scenario riskier, say veterans. The G7 finance leaders stated they were “committed to addressing the tensions stemming from the current challenges on our fiscal deficits, debt and growth.”

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