What Is the U.S. Debt Ceiling?
The U.S. debt ceiling is a law that puts a limit on how much money the government can borrow to pay its bills. This limit, or cap, was put in place in 1917 with the Second Liberty Bond Act and has been increased or modified many times since then. The current limit was set in 2019 and is set to expire on August 2nd, 2021.
Why Does the U.S. Need to Raise the Debt Ceiling?
As the government spends money, taxes and other revenues don’t always keep up with the costs. This means at times, the government needs to borrow money to pay its bills. This can only happen if the debt ceiling is raised, otherwise the government will not be able to borrow more money than the current limit. Without a higher borrowing limit, the government could face the risk of defaulting on its debts, which would have a catastrophic effect on the economy and financial markets.
House Speaker Kevin McCarthy recently said he is hopeful of reaching a deal to raise the debt ceiling and avoid default. This deal would need to be agreed upon by both the Democratic-led House and Senate, as well as the Biden administration.
What Are the Pros and Cons of Raising the Debt Ceiling?
Raising the debt ceiling is necessary to prevent a catastrophic default, but it also comes with certain pros and cons. On the plus side, raising the limit allows the government to fund needed programs and services without cutting back or running out of money and defaulting on its debts. On the downside, raising the debt limit could create an unsustainable debt problem in the future, where the government will need to continuously borrow more money, leading to higher deficits and debt levels.
Raising the U.S. debt ceiling is essential to avoiding a catastrophic default on the government’s debts. House Speaker Kevin McCarthy expressed optimism over the weekend that a deal could be reached between the Democrats and Republicans, and the Biden administration. Though there are certain pros and cons to raising this limit, the potential consequences of not doing so are far greater.