Debt problem looms over Washington again
2023.01.12 14:02
Debt problem looms over Washington again
By Ray Johnson
Budrigannews.com – Washington is on the verge of a debt crisis due to the anticipated confrontation over the debt ceiling between President Joe Biden’s Democrats and a newly elected Republican majority in the House of Representatives.
Federal borrowing is regularly restricted by Washington. The ceiling is currently set at $31.4 trillion, or roughly 120% of the country’s annual GDP.
According to experts at the Bipartisan Policy Center, the government may get so close to the debt ceiling as soon as this week that the Treasury Department may have to stop investing in some federal pension funds in order to continue borrowing.
Washington might have to stop taking out loans entirely by the middle of the year and only use tax revenues to pay its bills. Washington would begin to default on payments due to lenders, citizens, or both at that point because Treasury borrows close to 20 cents for every dollar spent.
Washington’s periodic lifting of the borrowing limit merely enables it to pay for spending Congress has already authorized, which is rare in the world.
Because the limit acts as a bureaucratic stamp on decisions that have already been made, policy experts, including Treasury Secretary Janet Yellen, have called on Washington to eliminate it.
The idea that the Treasury could avoid the crisis by minting a platinum coin worth multitrillions of dollars and depositing it in the government’s account has been criticized as an absurd gimmick by some analysts. Others contend that the debt ceiling itself is unconstitutional. However, if the Biden administration used that argument, there would be a legal challenge.
Both Democratic and Republican lawmakers support the debt ceiling, and both parties have used it as leverage when their party does not control the White House. Because of this, it is unlikely to be eliminated soon.
Investors who doubt the value of U.S. bonds—considered one of the safest investments and the foundation of the global financial system—would send shockwaves through global financial markets.
If the government was forced to default on payments for things like soldiers’ salaries or elderly Social Security benefits, the economy of the United States would almost certainly enter a recession. Millions of Americans would lose their jobs, according to economists. Some U.S. debt securities due around the anticipated showdown are already causing investors concern and demand higher yields.
In the November elections, Republicans gained control of the House, enhancing their ability to stall legislation like raising the debt ceiling.
According to House Speaker Kevin McCarty, any increase in the debt ceiling must include spending reductions. The White House of Vice President Biden has pledged that a Republican “hostage-taking” strategy will fail.
This kind of brinkmanship has been a part of American politics for decades, but it got much worse after the Republican Party’s fiscal hawks gained power since 2010.
House Republicans were able to use the debt ceiling to force Democratic President Barack Obama to limit his discretionary spending in a battle that took place in 2011.
Although the incident shook investors, spending caps remained in place for the majority of the decade that followed.
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