Debt Ceiling Crisis: Will the World’s Renowned Economic Safe Haven Default?

The United States is on track to exceed its borrowing limit in the coming days, as Treasury Secretary Janet Yellen warned Congress in early January that the country has reached its $31.4 trillion debt limitation. As a result, the Treasury would need to take “extraordinary measures” to avoid payment default. While this event risk resurfaces frequently, the political and economic repercussions differ depending on how long Democrats and Republicans take to address the issue. As the government near the deadline for raising its debt limit, the likelihood of default rises, potentially harming markets and the economy.

What exactly is a debt ceiling?

A debt ceiling is a limit imposed by Congress on the outstanding debt of the United States Federal Government. This means that Congress has already directed President Biden’s administration to spend the money, but he has restricted access to the funds required to do so.

What Happens If the United States Hits the Debt Ceiling?

The US Treasury currently has less than $400 billion in cash on hand, and the US government expects to borrow roughly $100 billion per month in 2023. When the debt grew near its limit, which Janet Yellen projected would happen on January 19, 2023, they began to save cash and delayed making payments for some services in order to gain time for negotiations. For example, the government temporarily suspends retirement programmes for government employees, with the idea that the difference will be made up when the ceiling is raised.

The department is currently taking “extraordinary measures” to keep the government running.The Treasury Department declared on January 30th that it intends to expand borrowing during the first three months of 2023 (1Q23), despite the fact that the debt will exceed the $31.4 trillion limit. The United States also intends to borrow $932 billion in 1Q23, which is $353 billion more than was forecast in October 2022, owing to a smaller cash position and an expectation of lower-than-expected income tax receipts as well as increased expenditure. Janet Yellen stated that her actions would buy time until Congress could approve legislation to either increase or suspend the nation’s borrowing ability. Janet further stated that funds and exceptional measures are unlikely to be depleted before early June.

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