john torrison president
   
  • Club Home
  • Club Members
  • Listen with Bill
    • Bill's History
  • Turntable
    • TT History
  • The FlipSide
  • Picturesque!
  • Skips Corner
  • Gulliver's Travels
  • The Club Pub
    • Sucks News
  • Harv's Corner

The Club PUBlication  05/08/2023

5/8/2023

0 Comments

 
Picture
Picture

​
Everything You Need to Know About the Debt Ceiling

Congress controls how much money the United States can borrow.
Here’s a look at why that is and what it means.


By Alan Rappeport Reporting from Washington
May 2, 2023

Picture
U.S Rep. Dean Phillips

Washington is heading for another big fight over whether to raise or suspend the nation’s debt limit, which caps the amount of money the federal government can borrow to pay its bills. This year is shaping up to be the messiest fight in at least a decade. Republicans are demanding that an increase in the borrowing limit be accompanied by spending cuts and other cost savings. President Biden has said he will oppose any attempt to tie spending cuts to raising the debt ceiling, increasing the likelihood of a protracted standoff. The president is set to meet with Republican and Democratic leaders at the White House on May 9 to discuss a path forward. But it is still unclear how quickly lawmakers will act to raise the nation’s borrowing cap. Here is what you need to know about the debt limit and what happens if no deal can be reached:

What is the debt limit?
The debt limit is 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. Because the federal government runs budget deficits — meaning it spends more than it brings in through taxes and other revenue — it must borrow huge sums of money to pay its bills. Those obligations include funding for social safety net programs, interest on the national debt and salaries for members of the armed forces.  Approaching the debt ceiling often elicits calls by lawmakers to cut back on government spending. But lifting the debt limit does not actually authorize any new spending — in fact, it simply allows the United States to spend money on programs that have already been authorized by Congress.

When was the debt limit reached?
The United States officially hit its debt limit on Jan. 19, prompting the Treasury Department to use accounting maneuvers known as extraordinary measures to continue paying the government’s obligations and avoid a default. Those measures temporarily curb certain government investments so that the bills can continue to be paid. The ability to use those measures to delay a default could be exhausted by June. Treasury Secretary Janet L. Yellen on Monday warned lawmakers that the United States could run out of cash by June 1 if the borrowing cap isn’t raised or suspended.

How much debt does the United States have?
The national debt crossed $31 trillion for the first time last year. The borrowing cap is set at $31.381 trillion.

Why does the United States have a debt limit?
According to the Constitution, Congress must authorize government borrowing. In the early 20th century, the debt limit was instituted so that the Treasury would not need to ask Congress for permission each time it had to issue debt to pay bills. During World War I, Congress passed the Second Liberty Bond Act of 1917 to give the Treasury more flexibility to issue debt and manage federal finances. The debt limit started to take its current shape in 1939, when Congress consolidated different limits that had been set on different types of bonds into a single borrowing cap. At the time, the limit was set to $45 billion. While the debt limit was created to make government run more smoothly, many policymakers believe that it has become more trouble than it’s worth. In 2021, Ms. Yellen said she supported abolishing the debt limit.

What happens if the debt limit is not raised or suspended?
If the government exhausts its extraordinary measures and runs out of cash, it would be unable to issue new debt. That means it would not have enough money to pay its bills, including interest and other payments it owes to bondholders, military salaries and benefits to retirees. No one knows exactly what would happen if the United States gets to that point, but the government could default on its debt if it is unable to make required payments to its bondholders. Economists and Wall Street analysts warn that such a scenario would be economically devastating, and could plunge the entire world into a financial crisis.

Will military salaries, Social Security benefits and bondholders be paid?
Various ideas have been raised to ensure that critical payments are not missed — particularly payments to the investors who hold U.S. debt. But none of these ideas have ever been tried, and it remains unclear whether the government could actually continue paying any of its bills if it can’t borrow more money. One idea that has been proposed is that the Treasury Department would prioritize certain payments to avoid defaulting on U.S. debt. In that case, the Treasury would first pay the bondholders who own U.S. Treasury debt, even if it delayed other financial obligations like government salaries or retirement benefits. So far, the Treasury seems to have ruled that out as an option. Ms. Yellen has said that such an approach would not avoid a debt “default” in the eyes of markets. ​“Treasury systems have all been built to pay all of our bills when they’re due and on time, and not to prioritize one form of spending over another,” Ms. Yellen told reporters earlier this year.


Alan Rappeport is an economic policy reporter, based in Washington. He covers the Treasury Department and writes about taxes, trade and fiscal matters. He previously worked for The Financial Times and The Economist. @arappeport



0 Comments



Leave a Reply.

    Archives

    July 2025
    June 2025
    May 2025
    April 2025
    March 2025
    February 2025
    January 2025
    December 2024
    November 2024
    October 2024
    September 2024
    August 2024
    July 2024
    June 2024
    April 2024
    March 2024
    February 2024
    January 2024
    December 2023
    November 2023
    October 2023
    September 2023
    August 2023
    July 2023
    June 2023
    May 2023
    April 2023
    March 2023
    February 2023
    January 2023
    December 2022
    November 2022
    October 2022
    September 2022
    August 2022
    July 2022
    June 2022
    May 2022
    April 2022
    March 2022
    February 2022
    January 2022
    December 2021
    November 2021
    October 2021
    September 2021
    August 2021
    July 2021
    June 2021
    May 2021
    April 2021
    March 2021
    February 2021
    January 2021
    December 2020
    November 2020
    October 2020
    September 2020
    August 2020
    July 2020
    June 2020
    May 2020
    April 2020
    March 2020
    February 2020
    January 2020
    December 2019
    November 2019
    October 2019
    September 2019
    August 2019
    July 2019
    June 2019
    May 2019
    April 2019
    February 2019
    January 2019
    December 2018
    November 2018
    October 2018
    September 2018
    August 2018
    July 2018
    June 2018
    May 2018
    April 2018

    RSS Feed