One would like to think that the borrowing of money is a perpetual action and that there is no limit to how much money one can borrow. However, that is not the case. Especially when it concerns a whole nation. Congress controls how much money the United States can borrow, and they about reached their limit on January 19.
The New York Times defines the debt ceiling as “a cap on the total amount of money that the United States is authorized to borrow to fund the government and meet its financial obligations”. Which stood at $31.4 trillion in January 2023.
Now what happens when this debt limit is reached, and how does it affect us?
After debt limit has been reached, there is a need to use accounting maneuvers or tools that temporarily stop certain government investments, better known as “extraordinary measures”. However, don’t breathe a sigh of relief yet, because according to The Times, those measures could be exhausted by June.
There is also a large number of conversations that have Congress voting to suspend or raise the limit on borrowing; it has become a topic of heated debate among lawmakers.
The worst-case scenario here is this: extraordinary measures are exhausted, and no new debt can be issued, therefore the Treasury Department would be unable to pay its bills. If this were to happen the government could end up defaulting on its debt. Such a situation is being described as economically devastating.
“Even short of default… would hamstring the government’s ability to finance its operations, including providing for the national defense or funding entitlements such as Medicare or Social Security.”
But before we entertain words like ‘economically devastating’ and ‘financial crisis’, know that since 1960, Congress has increased the ceiling of the debt seventy-eight times, most recently in 2021; and has suspended the debt limit seven times since 2013. Hopefully 2023 doesn’t become the year of exceptions.
President Biden claims that he will accept no less than a no-strings-attached increase. While House Majority Leader Kevin McCarthy wrote on Twitter that “If you gave your child a credit card and they kept hitting the limit, you wouldn’t just keep increasing it. You would sit down with them to identify where they are overspending and where they can change their behavior. It’s time for the federal government to do the same thing.”
While the Republican-led House already passed a bill in April 2023 promising to cut federal spending by almost 14 percent over the next decade if the debt ceiling were suspended, analysts say the bill has no chance of passing the “Democrat-led” Senate.
President Joe Biden and House Republicans seem to only have a month to prevent the US from defaulting on its debt, so let’s hope they get right to it, because our social security payments, federal employees, veteran benefits, financial markets, and the whole economy is at stake.
