The U.S. is at risk in the next three months of surpassing the debt ceiling set by Congress and defaulting on its debt. The results of such a default could potentially be devastating for all levels of the U.S. economy.
Currently, the U.S. debt is at $31.6 trillion and is expected to grow by another $2 trillion in the next year. The debt limit or amount of money the U.S. can hold in unpaid bills and debts is currently set at $31.4 trillion.
Typically, Congress, which has the power to dictate spending and U.S. debt will vote to raise the debt ceiling in order to avoid what is called a “default” on our debt. A default occurs when the U.S. government can no longer afford to pay its bills through the form of borrowing money from banks or raising taxes.
As of right now, Republicans are refusing to raise the debt ceiling unless Democrats agree to lower or even cut funding for key U.S. programs such as Medicare and Social Security. Both of those programs help disproportionately poor and elderly groups. Democrats so far have remained committed to the continued funding of the programs.
On March 7, Republicans in the House of Representatives introduced a bill that would keep some critical government functions operating in the event of a default, but it is unclear where that money may come from.
Since 1960, the government has voted 78 times to raise the U.S. debt ceiling under both Republican and Democrat presidents. The U.S. has also never once defaulted on its debt making this instance unparalleled in history.
“I think Republicans should stop stalling and agree to raise the debt ceiling,” said Mac Meier (‘23), an economics minor.
Currently, Janet Yellen who is Secretary of the Treasury has taken what she has referred to as “extraordinary measures” to keep funding the government until time runs out in July.
The U.S. surpassing the debt ceiling could potentially be catastrophic at all levels of the economy, not just those working for the federal government. In fact, many economists have predicted that the U.S. defaulting on its debt could lead to a worldwide recession similar to the one in 2008.
This is especially worrisome for people who are just entering the workforce as they are most likely to be at risk of losing their jobs in the event of an economic downturn. This includes recent college graduates who, as a result, may find it more difficult to be hired.
“I’m glad I’m not looking into careers in economics, as it would be very difficult to find a job right now,” said Meier.
This issue also highlights the larger issue facing the U.S. right now as it adjusts to having a divided government with Republicans controlling the House of Representatives and Democrats controlling the Senate and White House.
Another major factor propelling the issue of surpassing the debt ceiling is COVID-19. While most people consider the pandemic to be over, the U.S. economy is still trying to recover from the trillions of dollars spent on business bailouts and stimulus checks sent to individuals. As a result, inflation has risen considerably in a very short period not only for consumers but also for the government.
Surpassing the debt ceiling could lead to far greater inflation than the U.S. already faces, further driving up the cost of consumer goods which are already at record highs.