— Treasury Secretary Janet Yellen notified Congress that the United States will reach the legal debt limit tomorrow, Thursday, and asked House Speaker Kevin McCarthy to either suspend or increase the debt limit.
Yellen stated that the Treasury Department will begin "to take some extraordinary measures to prevent the United States from defaulting on its obligations," and warned that "failure to meet the government's obligations will cause irreparable damage to the US economy, the livelihoods of all Americans, and global financial stability."
Al-Jazeera Net presents everything related to the dilemma of the American debt ceiling, which if it becomes a crisis, its effects will not remain inside America, but rather extend to all parts of the world.
What is the debt ceiling?
The total national debt of the United States is about $ 31.4 trillion, which is the maximum that the US government can borrow, and this is the money that the US government owes to people who bought its bonds and other debt instruments, and US companies or US citizens hold a lot of this debt, despite Foreign governments and citizens have held more in recent years, amounting to $7.5 trillion, and China, Japan and Britain have the lion's share of this debt.
About $8.5 trillion of this debt is what is called “internal government holdings.” This includes government funds such as Social Security and various government pension funds. These funds buy US debt, which means they lend money to the rest of the government.
Why do you owe the US government?
And when did you start doing that?
The US government borrows to cover the gap in the volume of its expenditures, which exceeds the volume of its annual revenues, and the US government began to borrow regularly more than 100 years ago, specifically in 1917 after entering the First World War with the aim of calming the financial hawks and isolationists who either opposed the entry of the United States into the First World War, or They didn't want to borrow too much to pay for it.
And it didn't seem quite the same as it does today, as there were in fact multiple limits for different types of government debt that were revised in 1939 on the eve of World War II, to combine these separate debt limits into one limit, and Congress voted to raise the limit with each time it approached. Public debt from its extreme limits.
What does it mean for the government to reach the debt ceiling set by Congress?
The government cannot exceed the debt ceiling level set by Congress, and last raised the ceiling by $2.5 trillion in December 2021 to reach $31.4 trillion.
Legally, the federal government has the right to borrow money at this level, as long as it does not exceed the debt ceiling set by Congress, but if it reaches this limit, the Treasury will suffer from a shortage of money, and this means that it cannot meet its obligations, especially federal salaries. , or pay for government purchases, or borrow more money.
What is the position of Congress on the possibility of raising the debt ceiling?
Over the past decades, Congress has avoided violating the public debt limit, but the Republicans currently in the House of Representatives have said they will not support raising the debt ceiling this time unless government spending is cut or other concessions are obtained.
What would happen if Congress failed to raise the debt ceiling?
If the United States reaches its debt ceiling and Congress does not raise it, the Treasury Department will have to take “extraordinary measures” to avoid a financial disaster that will not remain within US borders, and the Treasury Department will begin transferring funds to cover the shortfall in cash flow, and these measures can continue for a few weeks or months. Just.
Once these measures run out, the federal government will have difficulty paying obligations such as Social Security checks and Medicare costs.
How can the size of the US public debt be understood in a simple way?
The official US Treasury figure for federal government debt is $31.4 trillion, which means:
Each US citizen's share of the public debt is close to $94,000.
Each American family's share of public debt is close to $239,000.
Public debt is more than 6 times annual federal revenue.
Public debt is 125% of annual US economic output (GDP).
The US government borrows to cover the gap in the volume of its expenditures that exceeds the volume of its annual revenues (Shutterstock)
Has the United States ever defaulted on its debt?
So far, the US has never defaulted on its debt, but Yellen warns that if Congress fails to act, it could happen by next June.
The last time the United States reached its debt ceiling was in 2011, and there was a shock in the markets, and stock prices fell, and negatively affected people's retirement savings, and this was also the first time that the federal government witnessed a downgrade of its credit rating.
Although the country avoided default, the Treasury Department found that the delay in raising the limit bruised the economy, which took months to recover.
What is the position of the White House on this crisis?
White House press secretary Karen Jean-Pierre told reporters last Friday that "Congress needs to raise the debt limit without strings attached."
What happens if the US government can't keep borrowing?
Nobody knows, the US government has never been able to pay its bills, and if the US can no longer borrow, the government may have to stop paying so much money.
Some money will still come in, but it's not enough to cover all of the government's expenditures, meaning the Treasury will have to decide which to pay on time and which to delay, and shrinking the government money that flows through federal paychecks, contractors and benefit payments could easily lead to slow down the economy.
The other major fear is that it will reduce confidence in American debt, and the United States got a taste of that when the country came close to its borrowing limit in 2011, and suffered its first-ever credit downgrade as a result, when Standard & Poor's downgraded its AAA rating. (AAA) for the country - the highest possible level - to "AA+" (AA+).
What would be the consequences of a US default or inability to borrow more?
This will mainly spook investors, which led to a rise in government borrowing costs by $ 1.3 billion in 2011, and if people lose confidence in American debt, they withdraw from the stock markets, which pushes yields higher, and this can push interest rates to rise on investments. Others, such as mortgages, can slow the economy to a great extent, and although default may be an American economic disaster, its consequences will be global par excellence.