The US is running out of cash to pay its dues and this is not good news. A crucial meeting between the leaders ended with no agreement. Read to know more about the debt ceiling and the possibility of the US defaulting.
What is the debt ceiling?
The debt ceiling is a legislative limit on the amount of money the American federal government can borrow. Created under the Second Liberty Bond Act of 1917, it is also called the statutory debt limit or simply, the debt limit. When raised, the US Treasury must find other ways to pay for the military, medicare, federal employees, and social security. These payments are in addition to the interest on the tax refunds and national debt. It is a legislative practice for the US Congress to vote on altering the ceiling.
As per a BBC report, the current cap is at $31.4 trillion. The US crossed the limit in January but thanks to “extraordinary measures,” the US treasury was able to provide more cash. However, if there is no agreement on increasing the limit, the federal government can run out of cash. This means the government cannot meet ends to pay wages and other payments. “It’s Congress’s job to do this. If they fail to do it, we will have an economic and financial catastrophe that will be of our own making,” stated the US Treasury Secretary.
Debt Ceiling: More on the current happenings
In case the debt ceiling is not raised, the entire financial system may experience a jolt since over $500 billion in US debt is traded on a daily bases. As per Moody’s Analytics stock prices will fall by about a fifth if the standoff between the executive and legislature is stretched. It added that this may lead to a loss of more than seven million jobs. While this is not a new phenomenon, this is threatening to unleash global turmoil. As per a Forbes report, Republicans have power in the lower chamber and passed a measure in the lower house, agreeing to raise the debt limit.
