The Debt Ceiling – The U.S. Balances Above Catastrophe
During a period where inflation and interest rates have occupied headlines, the significance of one potential dilemma hasn’t struck the mind of investors: the debt ceiling. Last month, the Congressional Budget Office provided estimates stating the debt limit could be hit as soon as July, spurring concern within the House of Representatives. Since 1960, the debt limit has been raised 78 separate times, with zero instances of a reduction. Now, in 2023, the debt ceiling is $31.4 trillion, and the House has yet to make the decision on whether it will raise it once again. If the debt ceiling wasn’t raised, the U.S. would default on its debt. The debt limit was reached early this year in January; however, the U.S. Treasury was able to continue to finance projects through special accounting measures.
Regardless, this catastrophic occurrence has never happened in U.S. history, although it has been very close on several occasions. In 2011, the House prolonged a debt limit raise just days before the U.S. was set to default on its bills, and several believe the same if not worse could happen soon. At the moment, a majority-Republican House of Representatives has used the debt limit as leverage, forcing the Democratic Party to cut spending on several priorities. Now, both parties seem to be in a standoff, waiting quietly for each other’s newest moves before acting on their own. In the end, this extraordinary political game is at the risk of the nation, as several hypothesize a default on the national debt would lead to a myriad of issues such as mass layoffs, a recession, even higher interest rates, and a complete inability for the federal government to serve the American people.
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.