Why the Debt Ceiling Is Always Controversial

The debt ceiling is an economic and political trait peculiar almost exclusively to the United States. According to The New York Times, Poland has something similar. Also, Denmark technically has a debt ceiling, but it’s so high that it’s never a problem to raise it like it is in America.

And boy, is it an American problem.

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The US has never defaulted on its debt, but has come close several times in a high-stakes game of political chicken that is now as frequent as one might expect. and now the two parties are at odds as the US hits the debt ceiling again. The question once again is whether both sides will come up with a quick fix that will pave the way for another opportunity, or will they make some concessions and reach a final resolution. Or, worse, will the political stalemate actually lead to US debt default?

No matter what happens, at the end of the day, most Americans are asking themselves the same thing: what does that mean, and why does the country always seem to come back to the same debate?

What is the debt ceiling?

The US has a budget deficit. So the government spends more money than it collects in tax revenue. To pay bills such as social security payments and military salaries, the government borrows huge sums of money by issuing Treasury bills and bonds.

The national debt is now $31.4 trillion. For context, the US GDP (total economic output of the richest country in the world) is $25.72 trillion. Knowing that, it may be hard to believe that there is a limit to how much the government can borrow. But there is

That limit is known as the debt ceiling.

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Why are there limits and who sets them?

The Constitution declares that all federal borrowings must be approved by Congress. In the early 20th century, debt limits were introduced to allow the Treasury Department to issue government bonds without congressional approval for each expenditure.

The solution was for Congress to cap the amount of money the government could borrow, and then periodically revise that cap as future borrowing requirements increased.

Why is debt ceiling policy so hot?

According to The New York Times, raising the debt ceiling was a routine part of standard, basic government practice. Then, in 1976, Gerald Ford vetoed appropriations bills over budget discrepancies, causing the government’s first partial shutdown, NPR reports.

It was the first of many. Partial closures were scheduled for him five times during President Jimmy Carter’s presidency, and his eight during the presidency of President Ronald Reagan. But they were much narrower and less hot than today’s political gladiatorial battles over debt ceiling negotiations.

That all changed in 1995-1996 when, in the midst of an ideological confrontation with President Bill Clinton, the Republican-controlled Congress was forced into a painful 21-day government shutdown.

The politically unpopular move backfired so badly that another closure didn’t occur until the 2010s, according to NPR. Shutdowns are political grenades that almost always explode into the hands of those who enforce them as influence. Republicans were reminded of this when the shutdown over Obamacare backfired. Democrats swallowed the same pill when they lost after being forced to shut down over the DACA law.

Shutdowns are frustrating and destructive

The reason debt ceiling policies are not so popular is that a government shutdown would have realistic consequences that real Americans feel in their daily lives. When you stop serving:

• National park near. Millions of people were shunned from America’s more than 400 national parks and monuments during the 2013 closures, and $500 million was lost.

• air travel 2018-2019 can be disruptive, like when air traffic controllers and Transportation Security Administration agents were forced to work unpaid during shutdowns.

• Environmental Protection Agency (EPA) field survey and Food and Drug Administration (FDA) Food testing has been suspended as of 2013 and 2018-19.

• social security Recipient continues to receive checks and Medicare Recipients can still go to the doctor, but many administrative tasks stop. From 1995 to 1996, more than 10,000 Medicare applicants were turned down for each day of closure.

• National Tax Agency Pauses many services, such as processing transcript requests. In 2013, his backlog of IRS document requests of over a million delayed his application for mortgages and other loans.

• Benefits of public assistance programs such as: snap When Tanfu — although their funding is mandatory — it is often delayed during shutdowns as the organizations that process and distribute them are affected.

But a default would spell catastrophe

During the shutdown, emergency measures will be taken to prevent defaulting if the government fails to pay interest on money already borrowed. Then the inconvenience will be the least of the country’s problems.

Yellen previously told ABC that “failure to raise the debt ceiling could possibly trigger an economic recession and possibly even a financial crisis…it would be a disaster.”

A report from Moody’s Analytics supports this claim, estimating that a default on government bonds would wipe out $15 trillion in household wealth and the loss of 6 million US jobs. The report predicts a stock market crash, a major tightening in the credit market, soaring business lending, and rising credit card rates. There’s also the little detail of the United States being revealed as a deadbeat nation to the world watching.

So what’s happening in 2023?

On January 19, 2023, Treasury Secretary Janet Yellen notified newly-elected Speaker of the House Kevin McCarthy that the country’s outstanding debt had reached the statutory limit of $31.4 trillion, according to CNN. Secretary Yellen said special measures are currently underway to prevent the country from defaulting on its debts, but they will only last until June 5.

Given the current instability, Yellen said, if the U.S. defaulted, it would wreak havoc on the U.S. economy and the financial stability of many Americans. With the Fed continuing to raise rates, the stock market trying to break out of its bear market, and many economists predicting an imminent recession, this will be a terrifying time for US debt defaults.

As is often the case in such deadlocks, many Republicans are reluctant to raise the debt ceiling, arguing instead for Democrats to cut spending. But Republican Senate Majority Leader Mitch McConnell tried to downplay the conflict, noting that resolving the debt ceiling would be “always a highly controversial endeavor”.As quoted by CNN: “I’m not going to worry about the financial crisis,” McConnell said, emphasizing that the United States has never defaulted and it has to happen.

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John Csiszar contributed reporting for this article.

This article originally appeared on GOBankingRates.com: Why the Debt Ceiling Is Always a Debate