The debt ceiling has been in the news a lot lately, with Secretary of the Treasury Janet Yellen claiming that the government will run out of resources to pay its obligations if the debt limit is not raised by June 5th. With only a few days until that deadline, House Speaker Kevin McCarthy has been meeting with White House officials to negotiate a solution.
What exactly is a debt ceiling and why is it so important? The debt ceiling, also known as the “debt-limit”, is the total amount of money the US government is allowed to borrow to finance its operations, such as Social Security, Medicare, public safety, and other services. It is usually set at an amount much higher than the amount of existing debt, allowing the government to borrow more money when needed, as long as Congress approves it.
Every so often, Congress sets a new debt-ceiling and increases it as necessary. This allows the government to meet its obligations and pay its bills. The recent talks between Speaker McCarthy and the White House are in response to the potential need for a higher debt-ceiling this June.
Interestingly enough, the debt-ceiling does not actually increase the amount of debt owed by the US government. Instead, it simply allows the government to borrow more money if needed. As a result, raising the debt-ceiling can be thought of as “holding off” the need to take out new loans or issue additional bonds.
Failure to raise the debt-ceiling could mean that the US government is unable to meet its obligations and would go into default. This could have serious consequences, such as a decrease in faith in the US dollar, a rise in interest rates, decreased access to credit, and other economic issues.
The US government has raised the debt-ceiling successfully 80 times since 1940, but sometimes talks and negotiations have been difficult, leading to potential delays or political brinksmanship. It looks like we may be headed for another showdown this June, as negotiations between Speaker McCarthy and the White House continue.
Regardless of the outcome, it is important to remember that the debt-ceiling is not meant to be a limitation on the country’s ability to borrow money, but rather a wayfor the US government to manage its obligations and debts responsibly. Hopefully Congress and the White House will reach an agreement soon, as failure to do so could have serious economic repercussions.