The United States has only 18 days to avert a global economic catastrophe, not just domestically..
According to the US State Department’s “Al-Hura” website, US lawmakers have a limited time to reach an agreement to raise the maximum amount the Treasury Department can borrow, otherwise the United States will deliberately repay its debts for the first time in history..
If the current debt ceiling is not raised, the United States will be banned from borrowing more than $ 28.4 trillion..
This issue generally raises differences between Republicans and Democrats. The debt ceiling has already been raised 80 times since the 1960s.
What is the credit ceiling?
Ideally, the US government, like the rest of the world, borrows money by issuing treasury bonds when it spends more money than it earns..
The debt ceiling, set by Congress 100 years ago, is the maximum amount the government can borrow, at $ 28.4 trillion as currently mentioned..
The ceiling represents the maximum limit that the state cannot exceed in debt, so the military must rely on its money to pay everything from salaries to letters of credit..
The US government annually issues dollar Treasury bonds to borrow by placing them on the market at a certain interest rate..
These bonds can be purchased overseas, by individuals, corporations, organizations and local companies in the United States.
The amount of U.S. government debt is currently under $ 28.5 trillion, or about 29% higher than the value of GDP this year..
The Social Security Administration has invested $ 2.9 trillion in its surplus income in government securities, and the Federal Reserve holds more than $ 5 trillion in U.S. Treasury bonds, a quarter of which the government owes itself..
In contrast, foreign countries, companies and individuals hold $ 7.5 trillion in U.S. government debt, with Japan and China being the largest investors with $ 1 trillion each..
The remaining securities belong to U.S. citizens, corporations, states, and local governments.
Why did you stop borrowing?
Prior to 1917, Congress authorized the government to borrow a certain amount for a fixed period of time, and could not borrow again if the government did not allow it when repaying the loan..
This changed after a new law was passed in 1917, which allowed debt to be paid off and the borrowing process to continue without congressional approval..
The move was implemented by Congress to spend the money that then-President Woodrow Wilson spent on what was considered necessary to fight World War I, rather than waiting for legislators who could not attend sessions due to frequent, or inter-state distances and difficult access..
However, Congress did not want to write a blank check to the President, so it limited borrowing to $ 11.5 billion and stipulated that there should be a new law if the amount is desired..
Since then, the debt ceiling has been raised dozens of times and suspended on several occasions, most recently in August 2019, when Congress lifted the limit until July 31, 2021..
The default of a paradigm shift in the world’s largest economy would have dire consequences, with consequences for the entire world economy.
Domestically, failure to raise the debt ceiling could result in non-payment of salaries with government employees or contractors, as well as it could stop providing loans to small companies or university students and halt the purposes of the bills. They owe it to themselves, which means it is technically in a state of disrepair..
The US is expected to slide into recession caused by a GDP fall of about 4% due to this default.
This would lead to the loss of about six million jobs, an increase in the unemployment rate and reach about 9%..
Externally, this backwardness will have adverse economic consequences as it is likely to depreciate against the dollar against higher interest rates and other global currencies, causing global markets to panic..
The recession will reduce the amount of goods and services that American consumers and companies buy from abroad, meaning that developing market countries will rely on exports to the United States for the bulk of their revenues.
Similarly, the expected depreciation of the dollar will have a similar effect because it will be more costly for US companies to buy goods from abroad, thus reducing the volume of global trade transactions..
Depreciation of the US currency will affect countries associated with the dollar, which will see a decline in the purchasing power of their current currency stocks..
Last week, U.S. Treasury Secretary Janet Yellen warned of possible financial catastrophe in the country if the debt ceiling is not raised and the United States fails to repay its debts on time..
“Within a few days, millions of Americans will be out of cash and about 50 million senior citizens will lose their Social Security checks. Soldiers’ salaries could be cut,” Yellen said.
Yellen recalled the 2011 debt crisis, a policy that “put the United States on the brink of crisis.”
Yellen stressed that acting quickly would help the country avoid the ill effects of 2011..
During the crisis over the debt debate under former President Barack Obama, the United States was closer to default than ever..
This caused Standard & Poor’s to downgrade the US credit rating to “AAA”, which shocked markets..
Yellen said the reserve currency on the dollar would “undermine confidence” and be a “safe haven”. “We are facing a fabricated crisis that we have imposed on this country, which is going through a very difficult period and is on the path to recovery,” he added.
Republicans in the U.S. Senate are urging the government to refuse to support any increase in the debt ceiling or to stop implementing the ceiling, although they have campaigned in this direction under former President Donald Trump.
On Monday, they blocked an attempt by Democrats to agree to suspend the ceiling for 14 months with an interim budget.
Senate Republican leader Mitch McConnell is using the debt ceiling as a political tool to protest President Joe Biden’s spending plans..
Raising the debt ceiling will not increase costs, but will allow the Treasury to fund projects previously approved by Congress, including the trillions of dollars in aid decided during the Govt-19 epidemic..
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