What if Congress doesn’t raise its debt ceiling?
The debate about debt ceilings (often called debt ceilings) is heating up again on Capitol Hill. But government officials, business leaders and economists have warned that it can be disastrous if not dealt with in a timely manner.
What is a debt limit and why is it there?
The limit is the maximum amount the United States can borrow to pay off its debts. If the government debt reaches this limit and the limit is not increased, the United States will not be able to pay the debt and may default. If Congress raises or suspends debt ceilings, it does not mean that new spending will be given the green light, but rather it will allow the Treasury Department to pay for spending that has already been approved.
The United States has had a debt ceiling for over 100 years. It was established by the Second Liberty Bond Act in 1917 and was set at $ 11.5 billion. Previously, lawmakers had to approve each debt individually. Later, in 1939, different types of debt were combined into a total debt limit, which was initially set at $ 45 billion. Since then, the state’s debt ceiling has been raised or suspended more than 100 times, according to the responsible federal budget committee.
Debt restrictions were recently brought up under President Donald Trump when Congress passed bipartisan law that suspended it for two years. When the suspension expired in 2021, the amount borrowed during that period (approximately $ 6.5 trillion) was increased to the previous debt limit of over $ 22 trillion, reaching $ 28.5 trillion on August 1. Dollar.
What if Congress doesn’t raise its debt ceiling?
After the suspension expired, the Treasury Department began paying bills through so-called “special measures”. These measures include suspending sales of some government bonds and redeeming or suspending investments or reinvestments in certain funds.
When the special measures are exhausted, the Treasury Department will issue cash. Without it (experts estimate it could happen in October), the US government will be unable to pay its debts and will become insolvent. This has never happened in American history.
If the US government can’t pay the bill, millions of Americans are affected. No social benefits are paid. U.S. military and civil federal employees are not paid. Veterans may see compensation or pension payments expiring. And millions of Americans who provide food aid will see the profits stop.
What if the US fails?
US failures “are likely to cause a historic financial crisis that will compound the damage from ongoing public health emergencies,” Treasury Secretary Janet Yellen wrote in the Wall Street Journal over the weekend. “Failures can cause interest spikes, stock price collapses, and other financial crises. The current economic recovery will turn into a recession with billions of dollars in growth and millions of jobs. . “
Financial services firm Moody’s Analytics said Tuesday the default was a “catastrophic blow” to economic recovery and, even if it were resolved quickly, Americans would be in default for generations. He said he would pay the price. This analysisNS If lawmakers continue to face it after the debt ceiling is breached, nearly 6 million jobs will be lost, unemployment will rise to nearly 9%, stocks will fall nearly a third, and households will fall by $ 15 trillion. It turned out that the assets will be wiped out. ..
The threat of failure can also have financial implications. In August 2011, days after the Obama administration reached an agreement with the Republican Parliament, Standard & Poor’s downgraded its US credit rating from AA + to AAA for the first time in history. Credit agencies said the downgrade reflected a view that US policies and the “effectiveness, stability and predictability” of US policy agencies have weakened during the ongoing challenges.
What about the Democratic-Republican debate?
For months, Democrats have been trying to find a bipartisan approach to raising or suspending the debt ceiling. But Republicans said the Democrats would not have their support.
On Monday, Democratic leaders announced they would include:The government is expected to stay running until December. The move will put the debt restrictions on hold until December 2022. That said, lawmakers don’t have to deal with it until the mid-term elections are over.
However, attempting to tie debt limits to state funding laws known as pending resolutions poses risks for lawmakers on both sides of the aisle.
For the Democrats, failure of efforts means not only a debt containment challenge, but could lead to a government shutdown at the end of the month. Republicans are voting against a bill that combines raising or suspending debt limits with recorded financial risks for the closure of the government. The integrated law will also force members who oppose changes in debt limits to vote against provisions they support, such as disaster relief and funds for Afghan refugees.
After the plan was revealed, Senator Mitch McConnell said in a press release that Republicans would vote for a clean and lasting solution with funds for Afghan refugees and disaster relief, but would not raise debt limits. The limit increase was repeated without the support of the GOP.
With a 50:50 split in the Senate, it would take the Democrats 10 Republicans to support the bill. McConnell has proposed that the Democratic Party include a debt ceiling clause in its budget adjustment package. This would have allowed the Democrats to suspend debt restrictions without Republican support. But the Democrats still want a bipartisan approach. Unclear points in 10 days: Plan B.