US Debt Ceiling explanation?
Not very well reported in the UK but seems that the US debt ceiling is nearly being reached and subsequently political turmoil between Democrats and Republicans to make a deal seem to be in the air. Can someone explain the impacts of this both economically and politically? Like I said, huge story for the global economy and yet the BBC has barely reported it (and even if they do they lack very basic economic understanding).
https://www.usatoday.com/story/money/economy/2023/05/15/what-is-the-debt-ceiling-explained/70212686007/
by Anna Kaufman
In what has become a terrifying game of chicken, President Joe Biden and congressional Republicans have reached a stalemate over the national debt ceiling.
The deadline to raise it could come as soon as June 1. That's when it is estimated the United States will run out of money and fail to pay its bills, including debts to bondholders and outlays on everything from national parks to Social Security checks. This would be a historic and catastrophic first that economists say would send the global economy into chaos.
As partisanship has become further entrenched across the country and especially in Washington, a previously routine congressional vote is emerging as a lightning rod for debate over government spending.
Here's what to know about the debt ceiling, why it gets raised, and what happens if we default:
What is the debt ceiling?
The debt ceiling is the limit placed by Congress on the amount of debt the government can accrue. In order to pay its bills to those it borrowed from and dole out money for everything from Medicare benefits to military salaries, the government needs more money, the debt ceiling has to be raised.
Created in 1917, the legislative cap has to be raised by a majority vote in both the Senate and the House of Representatives. That vote does not pledge any additional spending. It merely raises the limit the government can borrow to pay back commitments already agreed upon by Congress.
However, over the years both parties have tied it to government spending and used the debt ceiling as a cudgel to force the hand of the president.
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What happens if the debt ceiling is reached?
The debt ceiling has already been reached. The government hit its borrowing limit in late January. Since then, Treasury Secretary Janet Yellen said “extraordinary measures” have been taken so the country can pay its bills and avoid default as the two parties battle it out. A default would occur if the U.S. fails to pay bondholders who have lent money to the government.
What happens if the government defaults on the debt?
The United States has never defaulted on its debts. That’s part of why U.S. Treasury bonds are viewed as a safe investment and used by some banks as a backstop to counteract risky investments. A default would throw both the domestic and global economies into chaos.
The U.S. Treasury website warns that a default on the debt “would precipitate another financial crisis and threaten the jobs and savings of everyday Americans.”
In 2013, when the government careened toward default before raising the debt limit at the last minute, the economy lost 1% of GDP.
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When was the last time the debt ceiling was raised?
The debt ceiling is routinely raised to accommodate repayment of the country’s debt. The last time it was raised was in 2021.
While it has become increasingly politicized, for years it was viewed more as a bureaucratic government business than a mechanism for policy change.
In 2011, then-President Barack Obama and Republicans in Congress reached a stalemate, but they agreed on a deal to raise the ceiling just two days before the Treasury would have run out of money.
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What does the 14th Amendment have to do with the debt ceiling?
As fear grows over the failure to reach a deal on raising the debt ceiling, the White House is said to be considering an option of last resort: an untested legal theory that involves invoking the 14th Amendment.
After a meeting with congressional leaders on May 9, President Biden told reporters he had not ruled it out as an option.
The 14th Amendment deals mainly with equal protections granted to citizens under the law. However, the fourth section reads: "The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned."
Some legal scholars believe Biden could draw upon this clause to claim that he has the power to authorize the Treasury to repay U.S. debts even if Congress does not raise the ceiling. The move, considered but ruled out by the Obama administration, would likely get caught up in the courts.
How many countries have a debt ceiling?
Demark also has a debt ceiling. However, it does not share in the same debate or political brinkmanship.
For one, parliament has more principal power in the Danish government, preventing the kind of legislative-executive branch showdown seen in the U.S. Additionally, CNN reports, Denmark is more fiscally conservative than the U.S., so it has less debt and set its original ceiling much higher than its actual debt levels.
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What does it mean to raise the debt ceiling?
Raising the debt ceiling means increasing the amount of debt the country can accrue in order to pay its bills.
It is unrelated to future spending and is instead a limit on the amount of money the government can borrow to meet its existing legal obligations like payments to Social Security and Medicare.
U.S. government bonds have long been viewed as a safe investment because debts are always paid back on time. However, if the US were to default and for the first time in history fail to pay back those debts the value of government bonds would depreciate and the global market would enter a tailspin.
dont worry, if the BBC reported on it they would just saw that the US government has been taken over by white supremacists
the republicans control the house, which controls the debt ceiling. Thus, republicans have leverage over Biden in that he basically has to do what they say or the government will be shut down. Likely, debt ceiling will be raised in exchange for some reductions to federal aid that the republicans see as excessive.
The whole thing is a bullshit talking point. That is pretty much all you actually need to know.
the debt ceiling is a symptom of the greater issue of our country's love of spending beyond our means, regardless of party (save rand paul maybe)
when dems are in control, I get worried calls from republicans about the debt
when reps are in control, I get worred calls from dems about the debt
that should tell you all you need to know
Rand IMO is one of the only voices of reason in the last decade on fiscal matters. His dad Ron basically predicted the subsequent decade's financial problems when he ran for President last as well. Wish they both got way more attention, though Rand did do well for himself during the Fauci hearings.
Rand voted yes on adding trillions to the debt to give Soros a tax cut with Trump. But he was a no vote on providing healthcare to 9/11 first responders. Fiscally responsible my ass, he's just one of those republicans who suddenly starts caring about the debt when the government does something that will help regular people.
thebrofessor - is this spending and debt ceiling sustainable?
Would the solution be to reduced spending?
It's not sustainable, but arguably the US is the only country that can "sustain" this kind of spending given our world reserve currency status and possessing the most powerful military to enforce said status. As that comes under threat from the BRICs alliance though, this is more uncertain. Every major empire in history has collapsed from some combination of 3 things: 1) uncontrolled government overspending, 2) an overextended military, and 3) uncontrolled immigration disrupting culture - all of which the US is dealing with currently.
Yes, the only solution is to reduce spending because the other options are to 1) increase taxes which subsequently lowers productivity and lowers the taxes that can be received, see the Laffer Curve, or 2) conquer someone else and use their resources to pay our debts, which shouldn't be seen as an option given this is the 21st century.
I heard a federal budget expert saying that it looks like the Democrats want to breach the debt ceiling based on the executive branch's behavior. For example, they've engaged in no cash management techniques at all that could have easily extended the ability to pay debt by a month or two. It looks like the White House is counting on the media to run cover for them, i.e., to blame Republicans for breaching the debt ceiling. Based on history, it's not an unfounded political strategy. That said, the GOP position is the one that it is, possibly for once, the most moderate and politically palatable position. The GOP has already passed a debt ceiling increase that includes cutting spending to **checks notes** 2022 levels, requires the feds to increase permitting for oil and natural gas production, claws back some Covid-19 spending that was authorized but never used, and requires able bodied adults with no dependents to work to receive welfare benefits. For once, the GOP probably has the better political argument.
Is it just me, or does anybody kinda want to see what happens if the US actually defaults on its debt?
I have puts on banks, so yes.
It's better to see a crash sooner because kicking the can down the road will only see it compound in magnitude when the bill does come due. We learned nothing from 2008.
The financial markets would go crazy....
Republicans: can you at least trrrrrry to slow down spending?
Biden: No
You still fall for this shit huh
Republicans when they take the executive branch: But this spending is totally justified because it helps protect America!!!!!!
Trump oversaw the single biggest increase in government spending in US history before Biden came into office, and Bush did the same before Obama did. What a silly finger pointing game to play.
Who’s pointing a finger? The current dynamic is that Biden won’t sign anything with cuts and republicans want to force a freeze or cut…there was free money/spending under Bush, Obama, Trump…this is not news to me.
A good number of the GOP proposed policies aren't really spending related and I don't really understand how someone could oppose them. Claw back unused Covid spending, require able bodied adults with no dependents to work to receive welfare. Why couldn't Biden meet them one quarter of the way and agree to these perfectly rational positions that I'm sure would have 75% support? Get this negotiation wrapped up in 1 hour.
I’m so excited for 87,000 more IRS agents
This is what progress looks like!?
Who could have predicted someone was going to cave?
87,000 IRS agents
Oh no, billionaires will have to follow the law *GASP*
I thought the right wing liked law enforcement. The ultra wealthy need to follow the law as well.
I'm just happy we're on track to get there by Jun 1. Markets have sucked mega *ss for a while (not fun if you work in public markets), was not looking forward to another drawdown
Update. Cucked McCarthy shit the bed
Was there ever truly a belief he would do otherwise? When have Republicans ever had a spine when given genuine positional advantage (aside from SCOTUS nominees)?
Never
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