Averting a fiscal cliff: How the US is racing to raise its debt limit before time runs out
The clock is ticking for the US government as it faces the risk of defaulting on its debt obligations for the first time in history. The US debt ceiling, which is the legal limit on how much the federal government can borrow to pay its bills, is set to expire on June 1, unless Congress agrees to raise it or suspend it. The debt ceiling, which currently stands at $31.4 trillion, was last raised in 2019 as part of a bipartisan budget deal that suspended it until July 31, 2021.
However, the Treasury Department has been using extraordinary measures since then to keep paying the government’s bills without exceeding the limit. These measures include suspending investments in federal retirement funds, postponing payments to state and local governments, and issuing more short-term debt. But these measures are expected to run out by mid-October, according to Treasury Secretary Janet Yellen. If Congress fails to act by then, the US government will not be able to borrow any more money and will have to rely on its cash reserves and incoming revenues to pay its obligations.
This could mean delaying payments to Social Security beneficiaries, veterans, federal employees, contractors, and creditors. A default by the US government could have catastrophic consequences for the global economy, as it could trigger a spike in interest rates, a plunge in stock markets, a loss of confidence in the US dollar, and a disruption of trade and financial flows. To avoid this scenario, President Joe Biden has urged Congress to raise or suspend the debt ceiling as soon as possible, without attaching any conditions or partisan demands.
He has also suggested that he could use the 14th Amendment of the Constitution, which states that the validity of the public debt shall not be questioned, as a way to bypass Congress and lift the borrowing cap by himself. However, this option is controversial and has never been tested before. It could also face legal challenges from Republicans, who have opposed raising the debt ceiling without spending cuts or reforms. The US debt ceiling crisis is a test of the political will and cooperation of both parties in Congress. It is also a reminder of the need for fiscal responsibility and sustainability in the long run.
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