The U.S. raises its debt ceiling again

Source: Economic Reference Newspaper

The U.S. debt ceiling crisis has recently faced a deadline again. According to foreign media reports, the US House of Representatives passed a measure on the 7th, allowing Congress to increase the federal government's debt ceiling through rapid legislative channels to prevent debt defaults. Foreign media reported that the US Senate is expected to approve this measure on the 9th.

The analysis pointed out that in recent years, the United States has frequently faced the crisis of the debt ceiling, which shows the shortcomings of US politics, and its spillover risks also pose a threat to the recovery of the world economy and the stability of global financial markets.

The bipartisan game lasted for months

The U.S. House of Representatives passed a measure on the 7th that allows Congress to raise the federal government's debt ceiling through rapid legislative channels. As the risk of debt default in the United States is increasing, and the bipartisan agreement on raising the debt ceiling has been difficult for the two parties in Congress, Democratic lawmakers are trying to solve the debt ceiling problem on their own through this measure.

Under this measure, Democrats can raise the debt ceiling based solely on the party's approval vote. Senate Majority Leader Schumer said that hoping to avoid lengthy and complicated procedures would put democrats on the shoulders of raising the debt ceiling.

The U.S. Senate is expected to pass the measure on the 9th. Senate Republican leader Mitch McConnell agreed to help speed up the debt ceiling because it is in the national interest to avoid a debt default and expressed confidence in passing the measure on the 9th.

The debt ceiling is the maximum amount that congress sets for the federal government to borrow to meet the payment obligations that have arisen, and hitting the debt ceiling means that the U.S. Treasury Department's borrowing authorization is exhausted. According to a recent study released by the Bipartisan Center for Policy Studies, the federal government had hit the $28.9 trillion debt ceiling at the end of October.

Congress passed a bill in October that would temporarily raise the government debt ceiling by about $480 billion to ensure that the U.S. Treasury Department can meet its payment obligations until December 3.

McConnell has since made it clear that the Republican Party will not once again help Democrats raise the debt ceiling, and democrats will have to solve the debt ceiling problem on their own. Republicans want to make raising the debt ceiling one of the key issues democrats will be slammed in next year's midterm congressional elections.

Once the measure is passed by the Senate, the U.S. Congress will be able to accelerate the increase in the debt ceiling, although the level of increase has not yet been determined. Agence France-Presse reported that the U.S. debt ceiling could be raised to $30 trillion.

The debate in the U.S. Congress over the debt ceiling has been going on for months. The House of Representatives passed the measure by 222 votes in favor and 212 against on the 7th. Only one Republican lawmaker voted in favor.

Some Republican lawmakers believe trillions of dollars will be spent on unnecessary spending if the debt ceiling is raised, including U.S. President Joe Biden's $175 million domestic investment plan.

Democratic lawmakers say the debt ceiling was raised mainly to cover the increased costs of tax cuts and spending programs introduced by former President Trump, which were supported by Republican members of Congress.

The debt ceiling needs to be raised urgently

When the U.S. spends more than it earns from its taxes, it tends to issue bonds to raise more money.

According to the Associated Press, because the U.S. government relies on borrowing about 40 cents for every $1 it spends, once the borrowing authorization is exhausted, the U.S. Treasury department will not be able to meet all of its payment obligations and may default.

The Bipartisan Center for Policy Research last week predicted that if congress does not pass new legislation to raise the debt ceiling or suspend its entry into force, the federal government could default on its debt between December 21 this year and January 28 next year.

U.S. Treasury Secretary Janet Yellen last month urged Congress to raise the federal government debt ceiling by Dec. 15 to avoid the risk of default on government debt. Yellen said the U.S. Treasury Department will need to allocate $118 billion to the Highway Trust Fund by Dec. 15 after biden's infrastructure investment bill goes into effect.

Foreign media reported that once the US Congress passes new legislation to raise the debt ceiling, the Treasury Department will have enough borrowing authorization until next November's congressional election.

In 1917, U.S. lawmakers set a cap on borrowing to periodically review government spending. The debt ceiling has been raised nearly a hundred times over the decades to meet government spending commitments, a system that does not really fulfill its original intent to tighten fiscal discipline and rein in the growth of federal debt.

According to the Federal Budget Accountability Committee, the U.S. debt ceiling was less than $3 trillion in the 1980s, has been sharply raised to about $12 trillion in the first decade of this century, and has now exceeded $28 trillion.

Potential default risk threatens market stability

In recent years, the debt ceiling has increasingly become an important chip in the political game between the two parties in Congress, reflecting the serious political shortcomings of the United States and becoming an important source of risk for US economic growth and capital market fluctuations. If U.S. Treasuries default, economists generally agree that it will cause widespread economic disaster. While bipartisan agreements in the U.S. Congress tend to reach an agreement before the deadline for debt defaults and there have been no real debt defaults, increased concerns about debt defaults have also disrupted the smooth running of financial markets and the global economy.

In August 2011, the bipartisan game in the U.S. Congress over raising the debt ceiling struck a compromise only days before defaulting, causing capital markets to fluctuate wildly. Standard & Poor's, an international credit rating agency, downgraded the U.S. sovereign credit rating from "AAA" to "AA+" at the time, marking the first time in U.S. history that it had suffered a sovereign credit downgrade.

Democratic lawmaker leaders have been highlighting for weeks the economic catastrophe that a U.S. debt default could bring, including the potential loss of 6 million jobs, the $15 trillion loss of household wealth, and the rise in borrowing costs such as home loans and the likely plunge in the stock market.

House speaker Nancy Pelosi warned earlier on the 7th: "The debt ceiling must be resolved to prevent the economy from suffering trillions of dollars of unnecessary and catastrophic losses and to prevent credit ratings from being downgraded." ”

Schumer said: "As Yellen warned, a debt default will erase all efforts to recover from the pandemic. ”

Some analysts pointed out that the frequent occurrence of the US debt ceiling crisis may seriously weaken the credibility of US borrowing and shake the dollar's reserve currency status, and we should be vigilant against its spillover effects spreading to the global market through US debt, the US dollar and financial markets, dragging down world economic growth.