The US debt ceiling, simplified

A painting of a white neoclassical building with a large dome and columns surrounded by trees and flags.
The US Treasury Building is where the Secretary of the Treasury manages the nation’s finances and debt.

What is the debt ceiling?

The debt ceiling is the limit Congress sets on how much debt the government can have. The government borrows money to pay its bills, such as Medicare benefits and military salaries. To borrow more money, Congress has to raise the debt ceiling. This vote does not pledge any additional spending. It only allows the government to pay back what it already owes.

Why is it a problem now?

President Joe Biden and congressional Republicans disagree on raising the debt ceiling. Republicans want to cut government spending and refuse to raise the limit until Democrats agree. Democrats argue that the debt ceiling should not be tied to spending debates. The deadline to raise it could come as soon as June 1. If not raised by then, the US could run out of money and default on its debts.

What happens if the US defaults?

The US has never defaulted on its debts. This means that US Treasury bonds are seen as a safe investment by many banks and countries. A default would throw both the domestic and global economies into chaos. The US Treasury warns that a default would cause another financial crisis and threaten the jobs and savings of Americans.

How can it be solved?

There are a few possible ways to avoid a default. One is that Congress reaches a compromise and raises the debt ceiling before the deadline. Another is that Biden uses an executive order to cite the 14th Amendment of the Constitution, which states that the validity of US government debt “shall not be questioned”. A third option is that the Treasury uses “extraordinary measures” to keep paying its bills until Congress acts.

How can Congress reach a compromise on debt ceiling?

To reach a compromise, both parties have to negotiate and make concessions. For example, Republicans could agree to raise the debt ceiling in exchange for some spending cuts. Alternatively, Democrats could agree to some spending reforms in exchange for some revenue increases. However, both sides have to be willing to compromise and act quickly. Otherwise, they risk causing a default and a crisis.

How can Biden use an executive order?

Biden could use an executive order to cite the 14th Amendment of the Constitution, which states that “the validity of the public debt of the United States… shall not be questioned”. This means that the US has to pay its debts no matter what. Biden could argue that the debt ceiling is unconstitutional and order the Treasury to borrow more money to pay its bills. However, this option is very risky and controversial. It would likely trigger a constitutional crisis and a legal challenge. Many experts doubt that it would work or that it is a good idea.

How can Treasury use extraordinary measures?

Extraordinary measures are accounting maneuvers that the Treasury Department can use to prevent a default for a few months. They allow the Treasury to shift money around government accounts to stay under the debt limit. These measures include suspending or selling some investments in savings plans for government workers and health plans for retired postal workers. These funds are invested in special Treasury securities that count against the debt limit. By reducing these investments, the Treasury can create more room to borrow money and pay its bills. However, these measures are not permanent and have to be reversed when the debt limit is raised. Also, they depend on how much revenue the government collects and how much it spends. The Treasury estimates that these measures will last until June 5, 2023. After that, it may run out of money and default.

Conclusion of Current Debt Ceiling issue

The debt ceiling is a serious issue that could have devastating consequences for the US and the world economy. Congress has to act quickly and responsibly to raise or suspend the limit before the deadline. There are some possible ways to avoid a default, such as reaching a compromise, using an executive order or relying on extraordinary measures. However, none of them are easy or guaranteed to work. The best solution is to eliminate the debt ceiling altogether and avoid this unnecessary drama in the future.

Could Biden Use 14th Amendment to Ignore the Debt Ceiling? | Time

The US Debt Ceiling Crisis: What It Means for Your Money and Future

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