♪ order this is al jazeera. ukraine has received a major boost from western allies. germany has said it will provide 14 of its leopard two battle tanks for defense against russia. the u.s. has announced it is sending 31 abrams combat vehicles. pres. biden: secretary austin has recommended this step because it will enhance ukraine's capacity to defend its territory and achieve its strategic objectives. the abrams tanks for the most capable in the world.

they are extremely complex to operate and maintain. we are also giving ukraine the parts and equipment necessarily -- necessary to effectively maintain these tanks. we will begin to train ukrainian troops on these issues as soon as possible. delivering these tanks to the field is going to take time. time that we will use to make sure the ukrainians are fully prepared to integrate the abrams tanks into their defenses. >> the kremlin has dismissed the plan is absurd. a spokesman said kyiv's allies were overestimating the benefits of allies sending tanks, and that they will burn like others. meta will reinstate former president trump's accounts in the coming weeks. trump was suspended on facebook and instagram after the capitol hill riots. at least one person has been killed after an attack on two churches in spain. the man stabbed several priests.

spanish authorities say the attack is being treated as a possible act of terrorism. a judge investigating the beirut port explosion of 2020 is being charged with mishandling the inquiry, but refusing to step down. lebanon's top prosecutor also ordered the release of all those detained in the case. the european court of human rights will hear a case against russia over the downing of flight mh 17. all 219 on the aircraft were killed when it was shot down by a russian-made missile in 2014. other headlines. the news continues after inside story. >> talk to al jazeera. >> do you believe the women of afghanistan were abandoned by the international community? >> we listen. >> we are paying a huge price for the war against terrorism in somalia. >> we meet with global newsmakers and talk about stories that matter on al jazeera. >> the u.s. has hit its debt

ceiling. that has triggered a battle in congress. republicans say spending must be cut to lift the borrowing cap. president biden insists there should be no preconditions. what happens next? what effect does this have on the global economy? this is inside story. ♪ >> hello there and welcome. the white house has sought to assure americans that congress will find a bipartisan solution to avoid a debt default. that after the country hit a $31.4 trillion borrowing limit thursday last. congress usually votes and agrees to raise that limit, as it did last time. but, the standoff in washington this time seems riskier.

some republicans have declared they won't raise the ceiling again unless president biden agrees to steep cuts in federal spending. democrats are not budging, raising fears of a political showdown that could unsettle markets and hit global growth. ayden i also want to talk about the extreme republican economic plans. apparently they are genuinely serious about cutting social security and medicare. i love their 30% sales tax. we are going to talk a lot about that. but look, i have no intention of letting republicans wreck our economy. >> let's take a closer look at what is next for the u.s.. reaching the debt ceiling means the government is not allowed to borrow any more money unless congress agrees. the federal government could run out of money to pay its bills as soon june. that would pressure congress to either raise or suspend the

federal bowring limit. if that does not happen, some agencies will be forced to shut down. it has happened three times in the past 10 years. even delays, they cost. the dollar would weaken and borrowing costs would rise in the form of higher interest rates for mortgages, credit cards and other loans. america's debt to gdp ratio sits at 128%. that is lower than more than a dozen other countries, including japan, greece and italy. ♪ >> for more, let's bring in our guests. in california, william lee, chief economist at the milken institute. in washington, laura blessing, senior fellow at the government affairs institute at georgetown university. in sew -- a warm welcome to all of you. william first of all, tell us

how the u.s. managed to amass extraordinary debt. $31.4 trillion, most -- more than most of us can imagine it >> it is a phenomenal number. when you think in terms of trillions of dollars commit is hard to wrap your head around it. one of the things you have to remember is governments finance themselves either by taxes and/or borrowing. what is happening is that the huge government expenditures, be it for welfare programs, defense, government administration, has resulted in larger governments over time. these larger governments have had to fund themselves and they have not always raised taxes to balance the budget. once you have a debit -- once you have a deficit, you can only finance it through borrowing. u.s. deficits have accumulated over the decades. going back to the revolutionary days. we now have a position where the

u.s. has borrowed an enormous amount of money from its own people. one third of the debt has now been borrowed from the rest of the world. what sets the u.s. apart from the rest of the world is that the u.s. has reserve currency. countries are willing to lend to the u.s. if they are paid back in u.s. dollars. that gives the u.s. a special privilege which has allowed the u.s. to run a much larger deficit, much larger levels of outstanding debt. >> the whole world is in more debt than ever before. give us an idea as to how the u.s. ranks. >> because the federal reserve board has been going on with interest hikes, the rest of the world, coupled with the impacts from the russian new vision -- russian invasion of ukraine, has seen rise in prices. in the case of south korea, the bank of korea keeps raising

interest rates, following the federal reserve board's designation of new interest rates. in general, a lot of countries, especially in the industrialized world, people are grappling with having to pay bills and having to pay for loans. everything that has to do with a borrowing scheme has a burden on these people. going further, because the u.s. is intended to raise further the interest rate, we are going to see a huge burden on these people around the globe. >> it is generally assumed that debt is not a good thing. but, how much debt is too much? >> that is an economic concept, but a political one too.

we created structural deficits from a serious -- a series of policies for the u.s. economy has actually been fairly -- government spending has been roughly about the same percentage of u.s. gdp for multiple generations at this point. policy decisions like cut taxes in particular have caused a lot of structural deficits. but you have spending event priorities by both parties that has created this current state of affairs. economists certainly had different levels of debt they find concerning and everyone would consider the united states debt right now to be in that category. >> 50 percentage of -- if the percentage of debt to gdp hasn't changed, why does the u.s. bother having a debt ceiling? >> the levels of spending and taxation have been roughly the same, but spending has always

exceeded the level of revenue and taxes. what you find in the united states is that you are finding it difficult to finance more and more of this debt because the rest of the world, and u.s. citizens in general, are less willing to hold onto this debt due to concerns over not being paid off. by definition, the u.s. is able to pay off its debt with u.s. dollars. by printing more dollars, we can always pay off the debt. one consequence of doing that would be higher inflation, which is a conference -- that no government is willing to accept. we have to consider managing levels of u.s. debt by what is sustainable. at the imf there are formulas used to calculate sustainable levels of debt. with low interest rates, even though they are raising, they are still low enough that u.s. debt is sustainable. we are able to pay interest payments in an easy fashion.

the question comes down to the point of politics. what government is willing to cut back on expenditures in order to limit the amount of debt that is issued? right now, republicans are asking democrats to cut back on entitlements for -- entitlements. spending made permanent by legislation. democrats are saying no, our people need these entitlements. cut back on defense. the debate in congress is going back and forth about where to cut. the debt ceiling has been used as a hostage for these discussions in order to get one side to move. >> we had janet yellen implement extraordinary measures to tide the u.s. over until june. the focus now is on congress to sort out this issue for a longer term. you've got this not of hard-core

republicans in the house of representatives and a very stubborn sounding joe biden leading the democrats on the other. who is going to give in? what is going to happen? >> thanks a lot -- excellent question. this has become a particularly familiar dance we have been -- but we have been having partisan fights concerning the debt ceiling or a majority of one party is lining up against the other since 1953. i want to underscore that there is no good era for the debt ceiling. it is also not designed to result in fiscal restraint. it was designed to give the treasury more flexibility when it was originally created in 1917. we are perfectly capable of raising it without having any effect on government taxing or spending.

of course, it is being used as a tool to try to bring people to the table in terms of having some larger bargain. obama and speaker boehner attempted and failed at a grand bargain terrain and federal spending. but there is no requirement you actually do any legislating around spending and taxing. i want to put taxing on the table too. not just spending cuts. it is a math problem. you can add and subtract. this is not a circumstance that is particularly fortuitous for calm, measured, expert policymaking when you engage in this level of -- and it has never been used successfully as a tool for fiscal restraint. >> the rest of the world watches and holds its breath. what do other countries think of

the u.s. when they watch this play out in the 11th hour? >> regarding the treasury bonds that are issued in order to secure government expenditure and budget, many foreign countries that hold u.s. treasury bills have been scaling back. especially japan and china, in the past months, have been scaling back the amount of their -- purchases. it also has to do with the fact that the fed has been increasing its interest rate. the overall impact that the u.s. economy has on other countries is very much correlated, associated with the amount of liabilities the u.s. has onto these countries. it could be the case that in the coming months that could scale back even further. we won't know until june how

congress will react in response to the debt ceiling. but, chances are they will -- there will be harsh criticisms from china >> japan and china hold most of the u.s. treasury bonds. they have generally seemed robust. what if that is not the case now? what impact does that have? >> let's remember why it is that other countries hold u.s. treasuries and debt securities. it is because they have been running trade surpluses with the united states. they have exported more to us than they import from us. this imbalance has resulted in accepting u.s. dollars as payment for x. in order for these -- they have botched treasuries. because of all financial assets, it is the most safe and secure

because of the u.s. credit worthiness. the belief that the u.s. will always pay its debt obligations. whether it is interest payments or rolling over debt. the debt ceiling puts that in question. one of the things to remember is that the u.s. treasury security is the foundation of pricing for all other securities in the world. the consequences for the rest of the world goes beyond the amount of debt held by japan or the u.k. or china. it really is that the basis of all financial instrument pricing. everything that is issued, whether it is by emerging market companies -- countries or the euro area, every security is priced based upon the creditworthiness of u.s. treasuries. that is very important. discussions about the possibility of not paying u.s. interest is something that will shape the global financial markets because it -- it's very

core is based on the pricing of u.s. treasuries. that is the ramification that secretary yellen and every federal reserve chairman wants to avoid, to shake the financial system. >> nearly all of the financial assets on the planet are priced in relation to u.s. treasury bonds. if the u.s. does default, what would happen? the entire financial world becomes riskier? >> as we have seen in the case of the 2011 debt ceiling crisis, there is a possibility for a last-minute cap increase. or, there could be other avenues of policy action by the u.s. government that we do not know yet. it is not something we can anticipate at this moment because it won't be played out until june. >> let's look ahead and

hypothetically say that does not happen. >> that it does not increase? >> would be -- would you agree that that scenario cannot exist? >> it would be absolutely economically catastrophic to not -- to the united states and the rest of the world. historically, the threat of that catastrophe has prompted action, albeit last-minute action. in 2011, woodhead previously been a partisan but not perilous pattern of raising the debt ceiling, all of a sudden it became genuinely dangerous. historically, the pattern is that these folks play with fire, but come together at the last minute. we are shaping up to have potentially our most dangerous episode yet, just given the coordination challenges in congress.

we had a lot of coordination difficulties in the house of representatives, which the world has seen play out with the speakership votes. while the houses the more worrisome chamber, it is also going to be difficult in the senate. unless you attach this to a reconciliation package, which won't happen, this is something you're going to need 60 senators to vote for. in december of 2021, they had a highly unusual episode where they had a filibuster carveout. they created a meccas -- to created a mechanism by which they could raise the debt ceiling without having a single republican vote for it. the house will be difficult but the senate is not a cakewalk either. we should genuinely be concerned. but, the world and the press is right to be paying attention.

this is an important issue. >> the thing i am struggling to get my head around is that it does not have to be this way. it could quite simply not have a debt ceiling. janet yellen has scituate support getting rid of it. president biden has said he is against it. could you explain to us why people want to keep it? >> when you ask the question, what would have happened if the u.s. did not raise the debt ceiling? it happened in 2011. what happened was stock markets crashed around the world. all asset prices, the value of these assets started to crash because the basis of its pricing on u.s. treasuries was put in doubt. that is the disaster the world wants to avoid. the u.s. had a aaa rating status on its securities and became aa. the u.s. paid a huge price for that kind of recalcitrance.

why is it that every politician wants to keep that around? one we just raise the debt ceiling to be five times the level of debt we have now to give it more room, the way they do in denmark? the reason wise because every minority party, democrats and republicans together both realize they will be the minority at some point. it gives the minority party in the united states leverage to get its political agenda across and pass legislation. unfortunately, it puts the rest of the world at hostage to these domestic political battles. the political science of the debt ceiling is really what drives discussion and dynamics. no party will ever get rid of the u.s. debt ceiling because it knows that if it is ever in the minority, it can hold up everything and put pressure on the majority to get some of its

political agenda past. that history is something that has plagued the u.s. debt ceiling. whereas you have debt ceilings in europe, 60% of gdp was the mandate for the treaty that particular the euro area and allowed the euro to be the common currency. that 60% debt ceiling has consequences because the euro itself is based on having no more debt than 60%. italy and greece start week cds limits and other countries pull together enforce discipline onto italy or greece, or whatever country is exceeding its share the debt ceiling. in the united states, there is no such limit that is placed on congress. it is the two parties debating. and because there is no forceful limit that can be placed, no party will ever allow the debt ceiling discussion to go away. >> do you agree with that? that this perennial battle is here to stay?

>> i agree -- find a circumstance in the near future where the democratic party would have the votes to abolish the debt ceiling. while we have had both parties using it as a partisan tool to show that they would prefer to do spending a different way or do fiscal politics a different way from the other party, you have had serious voices including of major party leaders in the democratic party recently be in favor of abolishing it, or at least reforming it. i testified to congress last february, and you had a number of different bills that had been put forward to either abolish it or to blunt it has a dangerous tool. while it has been used by both parties over time, i wouldn't

describe it as being akin to the filibuster as being akin to the filibuster is something you always want when you're in the minority, or when you are trying to point out that you have a difference of opinion from whomever is in charge. i do think there was a missed opportunity for biden last fall to use the bully pulpit of the presidency to push harder for a potential abolition of the debt ceiling, or at least some level of reform. there are a lot of different ways we could reform this to be less dangerous. i personally favor what secretary eldon does, which is to get rid of it entirely. but there are different ways of blunting it. senator manchin, i am not sure the votes in the senate were there. if ever there were an issue to more stridently campaign on and

try to push for, this would have been an issue i would have gone to -- for. >> i can see william is still adamant there will never be a change to this debt ceiling. >> i do not first see them having the votes anytime. >> the u.s. is not an island. it may be a superpower, but it is certainly influenced by the rest of the world. is there no pressure that can come from outside the u.s. to force a change? given that it's actions to hold the rest of the global financial system hostage? >> if u.s. does not come to a plausible conclusion, the consequences could be quite disastrous. especially for countries that are holding u.s. treasury bills.

chances are it is not going to be the case that the treasury bonds are secure for investors. that might impact country's decisions to keep buying. their willingness to buy is the key issue because previously there has been an assured insurance by buying treasury bills for these countries. but, the scaling back efforts by china and japan gives me the sense that depending on the geopolitical situation or risk but there are chances that countries would not be willing to hold them if they did not desire them. that would be very consequential situation for the united states. >> it has been a great discussion. some key data we will be watching for incoming months. this ongoing debacle in the u.s.

william really -- william lee, laura blessing, june parker. you can see the program again any time by visiting our website aljazeera.com. do go to our facebook page. you can also join the conversation on twitter. from me and the whole team, bye for now. ♪

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