Monday, 17 Jun 2024

What is the US debt ceiling and what will happen if it is not raised?

What is the US debt ceiling and what will happen if it is not raised?


What is the US debt ceiling and what will happen if it is not raised?

Here is more on the debt ceiling and what it means for the US government:

The debt ceiling is the limit on the amount of money the US government can borrow to pay for services, such as social security, Medicare and the military.

To borrow money, the US treasury issues securities, like US government bonds, that it will eventually pay back with interest. Once the US government hits its debt limit, the treasury cannot issue more securities, essentially stopping a key flow of money into the federal government.

Congress is in charge of setting the debt limit, which currently stands at $31.4tn. The debt ceiling has been raised 78 times since 1960, under both Democrat and Republican presidents. At times, the ceiling was briefly suspended and then reinstated at a higher limit, essentially a retroactive raising of the debt ceiling.

Investors would lose faith in the US dollar, causing the economy to weaken quickly. Job cuts would be imminent, and the US federal government would not have the means to continue all its services.

The US debt grows when the government is spending more money or when its revenue is lower.

During the 90s, the end of the cold war allowed the government to cut back on defense spending, and a booming economy led to higher tax revenues. But then, in the early 2000s, the dotcom bubble burst, leading to a recession. George W Bush cut taxes twice, in 2001 and 2003, and then the US military campaigns in Iraq and Afghanistan increased spending by as much as nearly $6tn over the course of the war.

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