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What is the US debt ceiling and what happens if it is not raised? | | US Economy

The US government will reach its borrowing limit, or debt ceiling, on January 19, threatening to start a fierce battle over the government’s budget and exacerbate an already volatile economic outlook.

US Treasury Secretary Janet Yellen sent an ominous message. Warning statement “Specific and extraordinary measures must be taken to prevent the United States from defaulting on its debts,” he told Congress last Friday. is not raised, the federal government will run out of funds.

Here’s a closer look at the debt ceiling and what it means for the federal government.

What is the debt ceiling?

Congress can set limits on how much the U.S. government can borrow to pay its costs. This limit is called the debt ceiling, and the current limit is $31.4 trillion. Borrowing money allows the federal government to pay for budgeted expenses, such as Social Security and Medicare benefits and the salaries of the U.S. soldiers.

What happens if the debt ceiling is not raised?

Yellen warned that unless Congress raises the debt ceiling in the coming months, the economy will deteriorate rapidly.

“Failure to meet government obligations will cause irreparable harm. US economythe lives of all Americans, and global financial stability,” she wrote.

If the federal government were to default, investors would lose confidence in the U.S. dollar, which could lead to a weaker U.S. dollar, lower stock prices, and job cuts.

Even if the debt ceiling were raised, a prolonged dispute over it could still cause long-term economic damage. In 2011’s particularly vicious debt ceiling battle, credit rating agency Standard & Poor downgraded the U.S. government’s credit rating for the first time in history, subsequently increasing the cost of borrowing money for the U.S. government.

Why won’t Congress raise the debt ceiling?

With a new majority in the House, Republicans believe the debt ceiling could be a trump card in negotiations to cut spending.

House Speaker Kevin McCarthy said on Fox News Sunday that reaching the debt ceiling is the party’s test of its commitment to cutting spending.

“We couldn’t keep adding to it,” he said. “Sit down and let’s change our behavior for America, because if we don’t change their behavior today, we will bankrupt this country and bankrupt these rights.”

White House spokeswoman Karine Jean-Pierre said the administration “will not engage in any negotiations.”

“It … should be done unconditionally,” she said.

The battle to raise the ceiling can get ugly as the Republicans hold the votes needed to raise the ceiling.

so Joint statementSenate Majority Leader Chuck Schumer and House Minority Leader Hakeem Jeffries said Democrats want to move quickly toward passing a new debt ceiling.

“We’ve seen in previous debt ceiling standoffs that even the threat of debt default leads to even higher costs for working families,” they said. Failure to comply could plunge the country into a deep recession.”

What do Republicans want?

It is still unclear exactly how much the Republicans want to cut and what they want to target. source. The inability to borrow more money puts existing federal programs at risk.

But Republicans, especially the more conservative members of the party, are gearing up for a battle over the ceiling.

Some believe Republicans can push for a payment prioritization plan that would require the Biden administration to make only critical federal payments such as Social Security and Medicare. washington post reported that McCarthy personally made deals with conservative Republicans in the first quarter of this year as he fought for the title of chairman to pass a prioritization plan. Details of the plan have not been released, but it is clear that Republicans want to cut it.

White House Chief of Staff Ron Klein responded to the Washington Post’s report on the plan, saying: murmured Republicans want to “pay wealthy foreign bondholders” instead of funding other federal programs such as national parks and food stamps.

Why Do Debt Ceilings Exist?

For years, experts have argued that there is no justification for the debt ceiling to exist and that periodic increases are necessary. Few other countries have similar restrictions, and in recent history it has largely been a trump card in political negotiations between political parties, with grave consequences.

what happens next?

Expect months of controversy and leaks. The Republicans’ plans are not yet clear, but it’s clear that the newly empowered party, especially its more conservative faction, wants to leave its mark.

The fight to raise the debt ceiling has led to government shutdowns in the past. $11 billion cost – $3 billion of which was permanent.

So far, the stock market doesn’t look rattled, which suggests investors see this as another war of words. In the coming months, things may change.

https://www.theguardian.com/business/2023/jan/19/what-is-us-debt-ceiling-explainer What is the US debt ceiling and what happens if it is not raised? | | US Economy

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