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U.S. Debt Has Broken $31.4 Trillion Legal Limit, "Neither Party Is Likely to Concede"

By: anna Jan. 29,2023

According to the "U.S. Debt Clock" website data, the size of the U.S. federal government debt has exceeded the legal limit of $ 31.4 trillion on the morning of 18 local time, the government shutdown, the risk of debt default is close at hand. Many experts warned that the spillover risks will spill over to the global economy.

U.S. Treasury Secretary Yellen has previously said that the debt ceiling will force the U.S. Treasury to take "unconventional measures" to keep the government running. But she stressed that this can only last until early June at best, the key or the two houses of Congress need to pass a bill to raise the debt ceiling as soon as possible.

Just as the U.S. bipartisan struggle intensifies, still ticking "U.S. debt bomb" is afraid that the fuse is difficult to dismantle. CNN said, before the deadline, both parties are unlikely to give in. Reuters also observed that "there are no signs that both sides are willing to yield"

Real-time data from the "U.S. National Debt Clock" website shows that as of early January 19 local time, the total outstanding U.S. public debt stood at $31.498 trillion, an increase of about $135.2 billion in the last month and a half. According to the Peter G. Peterson Foundation, the debt of more than $31 trillion is more than the combined economies of China, Japan, Germany and the United Kingdom.

Yellen wrote to U.S. House leaders last week that the U.S. Treasury would first suspend new investments in various government accounts and change pension savings plans for working civil servants as part of the "unconventional measures" that were triggered. The Financial Times said that once these initial measures are exhausted, the Treasury may prioritize the repayment of government debt, social security and federal wages, etc., or "in danger".

Yellen said in the letter, the government is "unlikely" in "early June" before running out of cash. But she stressed that these measures are only a short period of time to save the emergency measures, the more critical or the two houses of Congress need to pass a bill as soon as possible to raise the existing debt ceiling of the United States.

Once the debt ceiling is hit, and the U.S. Congress did not approve the case of raising the ceiling, the U.S. Treasury will not be able to issue new debt to pay off part of the maturity of the national debt, the federal government will also face the risk of debt default, credit rating downgrades, government shutdowns and so on. Yellen warned that "this will cause irreparable damage to the U.S. economy, the livelihoods of all Americans and global financial stability."

In such a serious situation, the U.S. two parties are still at odds. The White House has repeatedly stated that the Biden administration will not negotiate and that Congress must raise the debt limit "unconditionally". But Republicans, who hold the majority of seats in the new House of Representatives, are using the debt ceiling issue as leverage to demand spending cuts from Biden and the Democratic-led Senate.

"This year's debt-ceiling 'showdown' moment could be the riskiest yet." CNN noted that House Speaker McCarthy, a Republican, had previously promised the ultra-conservative wing of his party, in an effort to win votes, to include provisions for deep spending cuts in any legislation to raise the debt ceiling. But Democrats, who hold a majority in the Senate, are unlikely to agree to such cuts, which has led to the impasse.

For his part, U.S. Senate Majority Leader Schumer appears ready to blame Republicans for any financial collapse. He released a statement on the 17th saying there should be no political brinkmanship on the debt limit and that "it is reckless for Speaker McCarthy and MAGA Republicans to try to use the full faith and credit of the United States as a political bargaining chip ...... A debt default would be catastrophic for American working families and lead to higher costs."

The report said McCarthy interviewed by Fox News on the same day tried to reduce the fireworks of the "showdown" between the two sides, but also refused to raise the debt ceiling significantly without any conditions attached. He said: "If you give your kids a credit card, they keep swiping it up to the limit, and you raise the limit over and over again. Why don't we change that behavior now so we can be in a stronger position financially?"

The BBC reported on the 18th that many analysts have now warned about the U.S. debt ceiling, saying it could lead to "a real economic disaster.

The Financial Times quoted Gregory Daco, chief economist at consulting firm Ernst & Young-Bozy Long, as saying that the U.S. Treasury would have to prioritize payments, leading to a "self-inflicted recession" and a "serious risk of financial market disruption. The risk of financial market disruption". He predicted that U.S. economic growth would be "instantly cut" by as much as 5 percent (on an annualized basis).

The Third Way, a left-wing think tank, estimates that a debt default could eliminate as many as 3 million jobs in the U.S., which is equivalent to nine months of job growth. In addition, the average 30-year mortgage cost would swell by $130,000, while the average retirement savings of seniors could shrink by $20,000. According to Moody's chief economist Mark Zandi's projections, a prolonged impasse on the debt ceiling would trigger a stock market crash that would evaporate $15 trillion in U.S. household wealth, spike unemployment from the current rate of about 5 percent to about 9 percent, and see as many as 6 million jobs disappear.

The U.S. debt ceiling system began in 1917, when Congress set up the system to enable the government to regularly review spending and strengthen fiscal self-discipline. However, since 1940, when records began, the size of the U.S. federal government debt has repeatedly approached or even reached the debt ceiling. This red line has also been revised 104 times, an average of once every nine months. Most of these have been upward revisions to meet spending commitments made by the government.

The most recent occurred in October 2021, when the U.S. federal government hit the statutory debt ceiling of $28.9 trillion and the U.S. Treasury took unconventional measures to avoid a debt default until the U.S. Congress passed legislation in December of that year to raise the debt ceiling to $31.4 trillion, which temporarily alleviated the debt crisis. However, just one year later, the U.S. federal government's outstanding debt increased by more than $2 trillion, again breaching the red line.
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