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The United States government is expected to run out of money within the next few weeks unless Congress can come to an agreement that will prevent the government from shutting down.
The debt limit is the maximum amount the United States is allowed to borrow to pay its debts. The U.S. debt limit was brought back into effect on August 1, 2021, following a two-year suspension in 2019. It was reset to the current amount of $28.4 trillion. The current debt ceiling is $28.4 trillion, almost reaching its cap.
The U.S. Treasury secretary, Janet Yellen, stated that the federal government estimates that it will run out of the money it has borrowed by October 18. Janet Yellen urges Congress to increase the debt limit as soon as possible to avoid the potential consequences. As Congress is making the decision on whether to raise the limits, the Department of Treasury has been taking extraordinary measures so that the limit would not bind. These measures include withholding scheduled contributions to the federal employee retirement fund and using that money to keep paying their debts instead. However, these special measures taken by the Department of Treasury are expected to be exhausted by mid-October if the debt ceiling is not raised.
Currently, Democrats want to raise the debt ceiling with the support of the Republican Party. Democrats are able to raise the debt ceiling on their own, however, they are looking for a bipartisan solution. Republicans are refusing to come to an agreement with the Democrats in favor of their own political interests.
Though this concept may seem easy to resolve, this situation poses a real threat for the millions of American citizens if lawmakers cannot come to an agreement in time.
So, how exactly would this situation impact the American people?
Failing to raise the debt limit in time could stop Americans from receiving their payments from the government. These payments include Medicare benefits, Social Security checks, tax refunds, and payments to government employees. The U.S. debt default is also expected to cause a rise in the unemployment rate, possibly reaching up to 9% if this issue is not resolved in time. This would be a 4% increase from the current unemployment rate of 5%.
Department of Treasury Secretary Janet Yellen warned lawmakers during a hearing on Tuesday, September 28 of the negative impacts the lack of quick agreement will have on the economy, "It would be disastrous for the American economy, for global financial markets, and for millions of families and workers whose financial security would be jeopardized by delayed payments.”
Other potential consequences of this include a decline in the United States’ creditworthiness, which would, in turn, spike interest rates. Public health funding for pandemic migration as well as government food assistance and veteran benefits could also be cut off. Americans that invest in the stock market will also be directly impacted by the possible default.
If the efforts of the Democrats fail, a government shutdown may be the result.
Sources:
What Is the Debt Ceiling, and What Happens If Congress Doesn’t Raise It?
U.S. debt default could wipe out 6 million jobs and $15 trillion in wealth
Debt ceiling: How is the US government running out of money and what happens next?
'No one would be spared': Debt default would set off dire consequences
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