Not Raising The US Debt Ceiling Could Mean Certain Death For The US Economy; Here’s Why

Not raising the debt ceiling would mean America being downgraded in their credit rating, many government workers would go unpaid and financial markets would undoubtedly take a hit.

By Ryan Clancy | Published

Debt ceiling

America has reached a debt ceiling of $31.4 trillion and will have defaulted on its debt by June. President Biden and the Republicans are trying to decide the best course of action. But action is needed now, or else the US economy is set for a crash as big as the global market crash in 2008. 

The debt ceiling is the most money the American government can borrow. It was initially put into law during World War One, giving the American Treasury permission to borrow money from the Federal Reserve up to a point. Since its implementation in 1960, the debt ceiling has been raised 78 times. 

The debt ceiling was last raised in 2021, during the COVID-19 pandemic, to $31.4 trillion, which the government has now hit. The government has accumulated this debt every year, as it spends more than what it collects in taxes from its citizens. So to make up that difference, it borrows money. 

Overspending is something that nearly every government, all the way back to the founding government, has done. But the national debt has increased rapidly in recent years as spending in different sectors has expanded, such as military, emergency funding during the COVID-19 pandemic, and rising national medical costs. 

Taxes collected from American citizens have not covered all the costs of government spending as the George W. Bush, Obama, and Trump administrations included several tax breaks within their time as president. In contrast, the tax increase during Bush and Clinton gave a rare surplus in government budgets from 1998 to 2001. 

So, what sectors are causing the government to spend so much of its dwindling budget? Programs like Social Security and Medicare are approved yearly without review as they are considered mandatory for the country to function. Many other programs are also in the mandatory section of government spending, and it makes up two-thirds of the overall yearly expenditure. 

Everything else is categorized under discretionary spending and must be approved by congress before proceeding. The defense budget accounts for half of the discretionary section of the government expenditure. 

The interest this debt is accumulating is also increasing incredibly quickly. In 2021, the interest for national debt was at a rate of 1.6 percent, but now it is up to 6 percent. In recent years, Federal Reserve interest rates have been historically low. But as inflation became more and more rampant, the Federal Reserve has been slowly increasing rates to try and combat it. 

America has yet to actually default on its national debt, but in 2011, they came very close to it as congress debates became prolonged. This delay caused Wall Street and the global market to freefall. To actually default on the loan, economists fear that the results would be a lot worse. 

Along with America being downgraded in its credit rating, many government workers would go unpaid and financial markets would undoubtedly take a hit. Hopefully, this will not happen as the government discuss what is the best course of action moving forward with increasing the debt ceiling. No one wants a repeat of 2008.