Lula goes to the G7, Biden can stay at home to avoid debt default – 05/11/2023 – Nelson de Sá

Lula is going to the G7 summit next week, but “Joe Biden signaled the possibility of canceling the trip if the impasse over the debt is not resolved”, in the Reuters dispatch.

He is pressuring Republicans to raise the debt ceiling. From Biden, in a video shown by Bloomberg and others: “If we default on our debt, it’s a problem for the whole world. Our international reputation would be affected to the extreme.”

This Thursday, a preparatory meeting for the summit was covered by Reuters with statements such as “US debt drama invades the G7 party” and “obfuscates”.

The crisis “is a headache” for host Japan, “the biggest holder of US debt” after China began to reduce its dollar reserves.

The US Treasury secretary was “delayed to call American executives and appear on TV programs warning of the danger of not raising the ceiling”.

Upon arrival, she wanted to discuss new actions against China with colleagues, but ended up focusing on the debt, in a press conference shown by Bloomberg and others. She warned of the “catastrophe” that a default would bring to the dollar “as a reserve currency”.

It sought to respond to Donald Trump’s interview with CNN, in which he said that Republicans “have to default” if Biden does not accept “massive cuts” in spending. The threat was the most read story in the Financial Times.

WORSE THAN BRAZIL AND MEXICO

According to Bloomberg (above), “the cost of insuring Treasuries against default now surpasses some emerging markets as the US government nears running out of cash.”

In other words, on the chart, “US credit risk appears to be emerging”.

BRICS AGAINST G7

Still on Bloomberg, “Brics will discuss a common currency plan at the South African summit”, in August. Just below, “Growing requests for alternatives to the dollar for global trade”. He notes that “the Brics surpassed the G7 in 2020, in purchasing power parity”.

Echoing the news, the FT discussed two reports on “Lula’s appeal to replace the dollar” with the Brics currency, one by Capital Economics, the other by Bank of America. From the bank, saying “don’t entirely rule out the possibility”:

“Even if it happens, it will take a considerable amount of time unless they quickly adopt the renminbi,” the Chinese currency.

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