The United States has reached its $31.4 trillion debt limit and must increase it in order to continue to pay its bills.
Because the United States economy runs a deficit, the country must borrow money to stay afloat. On Thursday, Treasury Secretary Janet Yellen sent a letter to Congress stating that the United States had reached its $31.4 trillion debt limit and would have to resort to “extraordinary measures” to continue paying its bills. These measures are basically ways to buy some time before breaching the nation’s borrowing limit and include pausing investments in the Civil Service Retirement Fund.
Deciding to raise the debt limit is fraught with politics, but it has been done several times before. Since 1960, the debt ceiling—or how much the nation could borrow—has been raised 78 times. Republican presidents were in power for 49 of those events while only 29 happened under Democrat presidents.
Congress must approve any request from the government to borrow money. The debt ceiling was raised three times during the Trump administration and once during the Biden administration. That happened late last year, with only one Republican in the House voting for the $2.5 trillion increase that brought the debt limit to its current level.
Some House Republicans have vowed to block any debt limit increase in order to cut federal spending, triggering fears that an enormous political fight lies ahead. Republicans currently hold a small majority in the House but the past few election seasons have revealed deep divisions within the party. This was evident when it took 15 rounds of voting to elect House Speaker Kevin McCarthy.
The Biden administration has made it clear that the president is not interested in negotiating over the debt ceiling. President Biden has rebuked those who say they will use the situation as a tool to obtain certain gains. The thought that America might default on its debt obligations has economists, politicians, and officials in a panic.
“The debt ceiling is too important to turn into a game of chicken, and default should never be suggested by those with a fiduciary responsibility to govern the nation,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a non-partisan non-profit organization. “Politicians who are rightly worried about the nation’s unsustainable borrowing path should take a hard stance against new borrowing and oppose legislation that would add to the debt while offering specific solutions to control the debt already on the books, rather than threatening not to pay bills on borrowing that has already been incurred.”
Although the U.S. has never defaulted on its debt, it came near in 2011 when House Republicans and the Obama administration battled over the issue. It resulted in a market sell-off and was the first time the country’s credit rating was downgraded. An actual debt default would have enormous consequences for the stock market and global economy, and further damage the nation’s creditworthiness.
According to MSN, the consequences of failing to raise the debt limit would send a shock wave throughout the globe because the dollar is considered the world’s benchmark currency. Possible results of a default include a stock market crash, higher interest rates, paying more for imported goods, and another credit downgrade for the government. Military spending, Social Security benefits, medical care for the vulnerable, and even air traffic control could be among the everyday functions the government would be unable to pay for.
Ultimately, the debate over raising the debt limit is more about politics than the economy. Both houses of Congress are controlled by different parties with razor-thin majorities, a situation that requires few holdouts to create havoc. Democrats and Republicans are blaming each other for the impending crisis instead of working together.
“Everyone knows Washington spending is out of control,” Senator Marco Rubio of Florida said. “In the past, both sides have come together to be a part of the solution. That needs to happen again, but it won’t until the administration stops playing politics and comes to the negotiating table.”