Understanding the Debt Ceiling – NBC Connecticut
One of the most controversial points being discussed in Congress is the debt ceiling. The House will vote on a bill that would suspend it on Wednesday, but Republicans in the Senate have said they will reject the legislation because they do not support an increase or suspension of the debt ceiling.
For many, the concept of the debt ceiling and what it means for our everyday lives can be confusing. Brian Marks, a senior lecturer in the Department of Economics and Business Analysis at New Haven University, sat down with Dan Corcoran from NBC Connecticut to break it down.
Dan: “So, we talk about it a lot, and it’s quite confusing. So can you just give us the basics? Why do we have to keep raising the debt ceiling? And what if we don’t. not ?”
Brands: “OK, thank you, Dan, for inviting me. Well, very simply, the way you look at the debt ceiling is that the US government has made commitments, financial obligations, and we have to pay those obligations, we borrowed money, so that we can meet many of our obligations in the future. By law, the US government is only allowed to borrow a limited amount. This is the debt ceiling . So what we did was put stuff on our credit card, and now we have to pay it off. If we don’t increase the debt ceiling, we won’t pay off our pre-existing obligations. we don’t pay those pre-existing obligations, it creates a lot of problems for the US government and the economy in general, and we can unpack that, if you want.
Dan: “So right now our debt limit, I believe, is $ 28.4 trillion. And a lot in Congress is looking to raise that limit. So another question for me and probably a lot of people back home is asking me. pose is how all this money is going to be paid and to whom is it owed?
Brands: “Okay, as far as who the money is owed to, it’s several people. One is from institutions and other countries. When the Treasury Department needs to borrow money. the money, he floats treasury bills and bonds. And people borrow, lend us the US government the money with the promise that we will pay it. It’s been part of our government system since the beginning of the states United of America. In fact, Alexander Hamilton wrote a report on credit, which explained the importance of why the US government must meet its obligations to other countries from which we borrow, as well as to the people we are committed to paying, whether they are contractors, Social Security, Medicaid, Medicare payments, and the various programs that are supporting the economy in light of this pandemic situation. So that’s where the money goes. refuel, who expect to be paid. And as well as those who lend us money. There the bondholders, if we stop paying one or the other group, we are in essence in default. “
Dan: “Now, in terms of the real implications of not meeting this debt ceiling deadline, how and where would we see this in our day-to-day lives? “
Brands: “Okay. And so some people say, well, it’s federal, what’s the problem? But think of all the programs involved in supporting. We’re coming out of a recession, we’re recovering from a pandemic. It is clear from information from the Fed that, yes, the economy has improved, unemployment is improving to around 5.2%. But let’s remember before the pandemic we were at 3, So what could that mean? Summer, there was an estimate by Moody’s that if we were to actually default, the ramifications could mean a loss of 6 million jobs, leading to an unemployment rate. of 9%. entrepreneurs, if we don’t pay our federal employees, they don’t spend money, because they don’t have to spend because they don’t get it.
“The interest rates, the cost of borrowing for the US government will go up because you are going to increase the risk, which means a likelihood of not paying let alone not defaulting. Interest rates will increase in the future. If interest rates go up, it means that the ordinary person who needs to borrow money on their own will see an increase in interest rates, as Treasury rates are used as a kind of benchmark for everyone. other rates.
“The other thing that could happen here is the implications for the future. What does this mean for President Biden’s agenda, his agenda, because we’re already reducing our ability to pay our obligations? What does this mean for our future obligations, the programs that are associated with this agenda? So, as Secretary Yellen said yesterday during her testimony before a congressional committee, it could be catastrophic. Our politicians are playing a brothel game today. And the consequences are the American economy and ordinary citizens of the United States and potentially global ramifications as well. “
The deadline is fast approaching, tomorrow midnight.