The Senate is expected to vote Thursday and increase the national debt limit by $480 billion. This would provide the Treasury, and the U.S., an additional two months of funding. Many are concerned about the debt ceiling and what could happen if lawmakers do not come to a concession on a long-term solution. Here is what the debate is about and how a default on U.S. debt could affect you.
Senate May Agree to a Short-Term Debt Ceiling Increase
Today, Democrat and Republican senators are set to increase the U.S. debt, at least for now. This morning, a verbal agreement was made to extend the U.S. debt by $480 billion, which would allow the government to continue borrowing until early December, according to the Treasury Department. A vote is expected to occur soon.
An agreement would prevent the U.S. from defaulting on its debts, but it only staves off the problem for two months. Congress will be right back in this dilemma in early December. This delay does give Democrat lawmakers the opportunity to focus on the negotiations inside their party over the infrastructure bill and the budget plan, which is decreasing well below the original amount of $3.5 trillion.
Democrats and Republicans Disagree Over Debt Ceiling Solution
Tensions over the debt ceiling increased in early September when Treasury Secretary Janet Yellen warned that the Treasury would be out of options and be unable to pay U.S. debts by October 18 if Congress did not act. Secretary Yellen said this week that the U.S. is, "staring into a catastrophe” if Congress does not act soon.
Republicans do not want to raise the debt limit or suspend the debt limit in light of the $3.5 trillion budget plan that their Democrat colleagues are trying to pass without any Republican support. McConnell, along with other GOP lawmakers, believes that the multi-trillion-dollar budget is a "historically reckless taxing and spending spree" which would hurt Americans in the long term.
Republicans contend that Democrat lawmakers should raise the debt limit using the budget reconsideration process they are already trying to use to pass the budget plan. Democrats argue that it is the job of Congress to set the budget, so both parties should be involved and contend that the budget reconciliation method would take too much time.
How The Debt Ceiling Works
What's surprising about the U.S. debt is that it doesn't directly authorize Congress to spend more money. It allows the Treasury to raise money to pay for expenses the government has already authorized. Congress limits how much money the U.S. can borrow (debt ceiling) and must either raise it or suspend it for the Treasury to raise more money.
In July of 2019, the U.S. debt limit was suspended until July 31, 2021. On August 1st of this year, the limit was reapplied and set and at $28.5 trillion, which is the current U.S. debt. This means that the Treasury cannot raise more money and why Secretary Yellen said that the U.S. is "staring into a catastrophe.”
How The Debt Ceiling Affects You Personally
On a normal day, the U.S. debt ceiling doesn't have a tangible effect on life, aside from increasing the national debt that will need to be repaid. If the debt ceiling is not extended and the U.S. is unable to raise more capital, it could have real consequences for everyone.
Secretary Yellen told lawmakers last month that if the U.S. debt is not raised, "It would be disastrous for the American economy, for global financial markets, and for millions of families and workers." Here is a brief list of ramifications that could occur if the debt ceiling is not raised:
- Infrastructure projects funded by the government would halt
- Social Security payments would stop
- Salaries for federal employees would cease
- Medicare, Medicaid, and the Children's Health Insurance Program (CHIP) would be in jeopardy
- Supplemental Nutrition Assistance Program (SNAP– formerly food stamps) would be reduced or discontinued
- Stock prices could drop by 30%, eliminating $15 trillion in national wealth
Wednesday the President had a conference call with business leaders and CEOs of major corporations. During the call, Jane Fraser, CEO of Citigroup said, "We just can't wait until the last minute to resolve this. We are, simply put, playing with fire right now...Every day of delay right now comes at an increasing price." JPMorgan Chase CEO Jamie Dimon said defaulting could lead to a "complete catastrophe for the global economy."
The Senate is expected to vote on extending the debt ceiling and forestall a financial crisis. Should the U.S. default on its debt, it could have massive ramifications nationally and around the world. Meanwhile, negotiations over the budget and the Infrastructure Bill continue as Democrats try to come to an agreement on the final budget price tag.
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