How Damage from a US Debt Default Could Cascade Across the Global Economy 

The likeness of Benjamin Franklin is seen on US $100 bills, Thursday, July 14, 2022, in Marple Township, Pa. (AP)
The likeness of Benjamin Franklin is seen on US $100 bills, Thursday, July 14, 2022, in Marple Township, Pa. (AP)
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How Damage from a US Debt Default Could Cascade Across the Global Economy 

The likeness of Benjamin Franklin is seen on US $100 bills, Thursday, July 14, 2022, in Marple Township, Pa. (AP)
The likeness of Benjamin Franklin is seen on US $100 bills, Thursday, July 14, 2022, in Marple Township, Pa. (AP)

If the debt crisis roiling Washington were eventually to send the United States crashing into recession, America's economy would hardly sink alone.

The repercussions of a first-ever default on the federal debt would quickly reverberate around the world. Orders for Chinese factories that sell electronics to the United States could dry up. Swiss investors who own US Treasurys would suffer losses. Sri Lankan companies could no longer deploy dollars as an alternative to their own dodgy currency.

“No corner of the global economy will be spared” if the US government defaulted and the crisis weren't resolved quickly, said Mark Zandi, chief economist at Moody’s Analytics.

Zandi and two colleagues at Moody’s have concluded that even if the debt limit were breached for no more than week, the US economy would weaken so much, so fast, as to wipe out roughly1.5 million jobs.

And if a government default were to last much longer — well into the summer — the consequences would be far more dire, Zandi and his colleagues found in their analysis: US economic growth would sink, 7.8 million American jobs would vanish, borrowing rates would jump, the unemployment rate would soar from the current 3.4% to 8% and a stock-market plunge would erase $10 trillion in household wealth.

Of course, it might not come to that. The White House and House Republicans, seeking a breakthrough, concluded a round of debt-limit negotiations Sunday, with plans to resume talks Monday. The Republicans have threatened to let the government default on its debts by refusing to raise the statutory limit on what it can borrow unless President Joe Biden and the Democrats accept sharp spending cuts and other concessions.

Feeding the anxiety is the fact that so much financial activity hinges on confidence that America will always pay its financial obligations. Its debt, long viewed as an ultra-safe asset, is a foundation of global commerce, built on decades of trust in the United States. A default could shatter the $24 trillion market for Treasury debt, cause financial markets to freeze up and ignite an international crisis.

“A debt default would be a cataclysmic event, with an unpredictable but probably dramatic fallout on US and global financial markets,” said Eswar Prasad, professor of trade policy at Cornell University and senior fellow at the Brookings Institution.

The threat has emerged just as the world economy is contending with a panoply of threats — from surging inflation and interest rates to the ongoing repercussions of Russia's invasion of Ukraine to the tightening grip of authoritarian regimes. On top of all that, many countries have grown skeptical of America’s outsize role in global finance.

In the past, American political leaders generally managed to step away from the brink and raise the debt limit before it was too late. Congress has raised, revised or extended the borrowing cap 78 times since 1960, most recently in 2021.

Yet the problem has worsened. Partisan divisions in Congress have widened while the debt has grown after years of rising spending and deep tax cuts. Treasury Secretary Janet Yellen has warned that the government could default as soon as June 1 if lawmakers don't raise or suspend the ceiling.

“If the trustworthiness of (Treasurys) would become impaired for any reason, it would send shockwaves through the system ... and have immense consequences for global growth,” said Maurice Obstfeld, senior fellow at the Peterson Institute for International Economics and former chief economist at the International Monetary Fund.

Treasurys are widely used as collateral for loans, as a buffer against bank losses, as a haven in times of high uncertainty and as a place for central banks to park foreign exchange reserves.

Given their perceived safety, the US government’s debts — Treasury bills, bonds and notes — carry a risk weighting of zero in international bank regulations. Foreign governments and private investors hold nearly $7.6 trillion of the debt — roughly 31% of the Treasurys in financial markets.

Because the dollar's dominance has made it the de facto global currency since World War II, it's relatively easy for the United States to borrow and finance an ever-growing pile of government debt.

But high demand for dollars also tends to make them more valuable than other currencies, and that imposes a cost: A strong dollar makes American goods pricier relative to their foreign rivals, leaving US exporters at a competitive disadvantage. That’s one reason why the United States has run trade deficits every year since 1975.

Of all the foreign exchange reserves held by the world’s central banks, US dollars account for 58%. No. 2 is the euro: 20%. China’s yuan makes up under 3%, according to the IMF.

Researchers at the Federal Reserve have calculated that from 1999 to 2019, 96% of trade in the Americas was invoiced in US dollars. So was 74% of trade in Asia. Elsewhere outside of Europe, where the euro dominates, dollars accounted for 79% of trade.

So reliable is America's currency that merchants in some unstable economies demand payment in dollars, instead of their own country’s currency. Consider Sri Lanka, battered by inflation and a dizzying drop in the local currency. Earlier this year, shippers refused to release 1,000 containers of urgently needed food unless they were paid in dollars. The shipments piled up at the docks in Colombo because the importers weren't able to obtain dollars to pay the suppliers.

“Without (dollars), we can’t do any transaction,” said Nihal Seneviratne, a spokesman for Essential Food Importers and Traders Association. “When we import, we have to use hard currency — mostly the US dollars.”

Likewise, many shops and restaurants in Lebanon, where inflation has raged and the currency has plunged, are demanding payment in dollars. In 2000, Ecuador responded to an economic crisis by replacing its own currency, the sucre, with dollars — a process called “dollarization” — and has stuck with it.

Even when a crisis originates in the United States, the dollar is invariably the go-to haven for investors. That's what happened in late 2008, when the collapse of the US real estate market toppled hundreds of banks and financial firms, including once-mighty Lehman Brothers: The dollar's value shot up.

“Even though we were the problem — we, the United States — there was still a flight to quality,” said Clay Lowery, who oversees research at the Institute of International Finance, a banking trade group. “The dollar is king.”

If the United States were to pierce the debt limit without resolving the dispute and the Treasury defaulted on its payments, Zandi suggests that the dollar would once again rise, at least initially, “because of the uncertainty and the fear. Global investors just wouldn’t know where to go except to where they always go when there’s a crisis and that’s to the United States.”

But the Treasury market would likely be paralyzed. Investors might shift money instead into US money market funds or the bonds of top-flight US corporations. Eventually, Zandi says, growing doubts would shrink the dollar's value and keep it down.

In a debt-ceiling crisis, Lowery, who was an assistant Treasury secretary during the 2008 crisis, imagines that the United States would continue to make interest payments to bondholders. And it would try to pay its other obligations — to contractors and retirees, for example — in the order that those bills became due and as money became available.

For bills that were due on June 3, for example, the government might pay on June 5. A bit of relief would come around June 15. That's when government revenue would pour in in as many taxpayers make estimated tax payments for the second quarter.

The government would likely be sued by those who weren’t getting paid — “anybody who lives off veterans’ benefits or Social Security,” Lowery said. And ratings agencies would likely downgrade US debt, even if the Treasury continued to pay interest to bondholders.

The dollar, though it remains dominant globally, has lost some ground in recent years as more banks, businesses and investors have turned to the euro and, to a lesser extent, China’s yuan. Other countries tend to resent how swings in the dollar's value can hurt their own currencies and economies.

A rising dollar can trigger crises abroad by drawing investment out of other countries and raising their cost of repaying dollar-denominated loans. The United States’ eagerness to use the dollar’s clout to impose financial sanctions against rivals and adversaries is also viewed uneasily by some other countries.

So far, though, no clear alternatives have emerged. The euro lags far behind the dollar. Even more so does China’s yuan; it's hamstrung by Beijing’s refusal to let its currency trade freely in global markets.

But the debt ceiling drama is sure to heighten questions about the enormous financial power of the United States and the dollar.

“The global economy is in a pretty fragile place right now,” Obstfeld said. “So throwing into that mix a crisis over the creditworthiness of US obligations is incredibly irresponsible.”



The End of a Forced Coexistence: Arab Tribes Turn Against the Syrian Democratic Forces in Eastern Syria

Armed clashes between Arab tribal fighters and the Syrian Democratic Forces (SDF) and the Kurdistan Workers’ Party (PKK) in the Manbij area of northern Syria in September 2023 (Getty)
Armed clashes between Arab tribal fighters and the Syrian Democratic Forces (SDF) and the Kurdistan Workers’ Party (PKK) in the Manbij area of northern Syria in September 2023 (Getty)
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The End of a Forced Coexistence: Arab Tribes Turn Against the Syrian Democratic Forces in Eastern Syria

Armed clashes between Arab tribal fighters and the Syrian Democratic Forces (SDF) and the Kurdistan Workers’ Party (PKK) in the Manbij area of northern Syria in September 2023 (Getty)
Armed clashes between Arab tribal fighters and the Syrian Democratic Forces (SDF) and the Kurdistan Workers’ Party (PKK) in the Manbij area of northern Syria in September 2023 (Getty)

In Syria’s vast northeastern areas, a brittle arrangement has for years held together an uneasy coexistence between the Arab tribes and the Kurdish-led Syrian Democratic Forces (SDF). But today, that arrangement appears closer than ever to unraveling, as mounting grievances and shifting regional dynamics converge to end what many tribal leaders now call a “forced coexistence.”

Over the past months, prominent Arab tribal leaders have stepped up their denunciations of the SDF, accusing it of discrimination, repression, and siphoning off the region’s natural wealth. These tensions have erupted into public declarations, including a striking statement in early July, in which elders from major tribes in Deir ez-Zor, Raqqa, and al-Hasakah demanded that the US-led international coalition end its support for the SDF.

From Tactical Alliance to Deep Estrangement

When the SDF first emerged in 2015 - formed largely by the Kurdish People’s Protection Units (YPG) but incorporating Arab and Christian militias - many Arab tribes regarded it as a necessary partner against ISIS. After all, the militant group had rampaged through tribal lands, massacring communities and imposing draconian rule. For a time, this partnership worked: from 2015 to 2017, tribes like the Shammar, Baggara, and parts of the Aqeedat fought shoulder-to-shoulder with Kurdish forces in a shared struggle against ISIS.

But as the warfronts cooled, new frictions emerged. Arab leaders began to accuse the SDF of marginalizing them politically and economically, imposing ideologically charged school curricula, conscripting young men and boys, and monopolizing oil and wheat revenues.

By 2018 and 2019, large protests against mandatory conscription and perceived ethnic bias erupted across the region. Still, the SDF retained an aura of indispensability, its American backing and battlefield record insulating it from more serious challenges.
Today, that insulation is wearing thin.

The most recent wave of anger began in June 2025, when an SDF fighter shot and killed 11-year-old Farid al-Hureish in the town of Abu Hardoub. Days later, another boy, Ali al-Awni, died after SDF forces opened fire as he gathered wheat near a checkpoint. Such incidents are far from isolated. Local monitors and human rights groups have documented kidnappings, forced recruitment of minors through the Revolutionary Youth organization, and heavy financial levies on families seeking exemptions from military service.

In a recent interview, Nasser Hammoud al-Faraj, a prominent sheikh from the Boushaban tribe, said these abuses had created a “boiling point” across the region: “The people have lived for years under repression, exclusion, and humiliation,” he said. “This is not a foreign agenda; our tribes themselves demanded this declaration.”

Indeed, the July statement signed by 14 tribal dignitaries did not mince words. It accused the SDF of “systematic oppression,” destabilization, and theft of resources. Addressed to the US government, the declaration called for an end to military and political support for the SDF and for Syria’s central government to reassert sovereignty over the entire northeast.

Though much Western coverage portrays the SDF as a unified Kurdish force, it is in fact a complex coalition. Alongside the YPG, it includes Arab formations such as the Sanadid Forces - historically loyal to the Shammar tribe - and the Deir ez-Zor Military Council, which incorporated Arab fighters from the Aqeedat and Baggara. Yet these same tribal networks are now fracturing.

A dramatic illustration came in 2023, when the SDF arrested Ahmed al-Khabil (Abu Khawla), leader of the Deir ez-Zor Military Council. That move shattered remaining loyalty among many Arab factions. “From that moment, the last shreds of trust began to disappear,” says al-Faraj.

To complicate matters further, some tribes and sub-clans remain aligned with the SDF, while others are in contact with Damascus. Even within a single tribe, families may be divided: some serving in SDF structures, others quietly supporting the Syrian government, and still others advocating autonomy or neutrality.

This tangle of loyalties is not new. For generations, tribal allegiances have shifted according to local interests, personal rivalries, and broader geopolitical currents. But according to tribal leaders, the balance is tipping decisively away from cooperation with the SDF.

While recent tribal declarations have emphasized peaceful solutions, the language has also grown more menacing. Sheikh al-Faraj said plainly that if diplomatic avenues fail, tribes may pursue military action: “We do not seek conflict for its own sake,” he said. “But we cannot accept the occupation of our lands. We will act if necessary, with our own forces and with others who share our vision.”

To that end, tribal networks have quietly reorganized self-defense groups and explored links with Damascus. While the SDF still controls the bulk of the region militarily, the Syrian government has positioned itself as a potential guarantor of tribal rights and national unity.

In the past year, official Syrian media - long restrained in its references to the SDF - has begun openly condemning it as an occupying force. Even Governor Ghassan al-Sayyed Ahmad of Deir ez-Zor, typically cautious in public remarks, confirmed that Damascus retains military options: “If negotiations fail,” he warned in late June, “we have three fully prepared divisions ready to intervene.”

Strategic Calculations: Damascus, Washington, and Ankara

For the United States, this tribal rupture represents a profound dilemma. The SDF has been Washington’s main counterterrorism partner against ISIS. US officials, including Special Envoy Thomas Barrack, have repeatedly stressed that their cooperation is based on combating extremism rather than endorsing any project of Kurdish autonomy. But tribal grievances are testing this posture.

While the Biden administration has so far avoided any direct condemnation of the SDF, it has privately urged Kurdish commanders to moderate their policies. According to multiple regional sources, US diplomats have warned that continued abuses could undermine the entire anti-ISIS coalition and trigger Turkish or Syrian intervention.

Türkiye, for its part, has consistently opposed any Kurdish-led administration along its border. Turkish leaders have threatened new incursions if the SDF attempts to formalize autonomy or establish closer ties with the PKK. Analysts believe that any large-scale tribal uprising would likely draw tacit Turkish support, especially if it further weakens Kurdish positions.

To contain the crisis, the SDF has resorted to tactical concessions. In the aftermath of the 2023 clashes, it released waves of detainees, some of whom were arrested for allegedly supporting ISIS, others simply for joining tribal protests. The releases continued sporadically into mid-2025, culminating in a large-scale exchange in April: 140 SDF captives for 100 prisoners held by Syrian government forces.

While these deals have bought time, they have not erased deep resentment. Many tribes now insist that only the full restoration of Syrian state authority can bring stability.

Beyond military options, Arab tribes have begun constructing new political frameworks. In April, tribal elites announced the creation of the “Council for Cooperation and Coordination in Jazira and the Euphrates,” aimed at unifying tribal voices against what they called SDF “hegemony.” In founding statements, council leaders vowed to reject any attempt by the SDF to claim representation of Arab communities in negotiations with Damascus or in international forums.

This reflects a broader evolution in tribal political consciousness. Where once many leaders accepted limited accommodation with the SDF, they now see prolonged Kurdish-led rule as an existential threat to Arab identity, economic rights, and local governance.

The northeastern region is a mosaic. In Deir ez-Zor and Raqqa, Arabs form overwhelming majorities, organized in centuries-old confederations like the Aqeedat, Baggara, and Jubur. In al-Hasakah, the picture is more mixed: Arabs dominate much of the countryside, while Kurds are concentrated in urban centers such as Qamishli and Ras al-Ain. Christian Assyrian and Syriac communities add further complexity, as do smaller minorities of Turkmen, Circassians, and Armenians.

Any future political arrangement - whether federal, autonomous, or unitary - will have to balance these identities. The head of the Research Unit at the London-based Abaad Center for Strategic Studies, Syrian researcher Firas Faham, said: “The region is a dormant volcano. If there is no comprehensive settlement, conflict is inevitable.”

End of the Era of Forced Coexistence

In recent weeks, this metaphorical volcano has rumbled ever louder. Syrian state media and official statements now refer openly to “the occupation” by SDF forces. Behind closed doors, discussions are underway among Damascus, Moscow, and even Ankara about a possible reconfiguration of control.

Mudar Hammoud al-Assad, chairman of the Supreme Council of Syrian Tribes and Clans, told Asharq al-Awsat that the SDF’s options are narrowing: “After the American envoy clearly stated that the only legitimate interlocutor is the Syrian government, the SDF is exposed. They may face military action with tacit American and Turkish approval.”

Even if open war does not break out, tribal consensus against the SDF has never been stronger. What once was a tactical alliance, born of necessity in the struggle against ISIS, has become a marriage of deep resentment.

Despite the historical differences among the tribes, the growing resentment over marginalization, arbitrary arrests, and other grievances appears to have unified a tribal discourse demanding the return of the Syrian Army. Options remain suspended between negotiations and military confrontation, especially in light of official Syrian statements about the readiness of government forces.

This escalation places the international coalition in a delicate balancing act between supporting its ally, the Syrian Democratic Forces - whose local legitimacy is increasingly contested - and responding to tribal pressures warning of a potential explosion of unrest, something Washington does not want and is actively trying to prevent.