The Debt Ceiling in 2021
What is the Debt Ceiling?
The debt-ceiling is a legislative policy that limits the amount of national debt that can be accumulated by the US Treasury. In other words, it is a limit on how much the federal government may borrow to meet its financial commitments. The US is notorious for the ever-increasing debt-ceiling as borrowing becomes more and more necessary, and the increasing budget deficit means that the US spends more than what it collects in taxes. In recent years, this debt ceiling has exceeded the ability of the US to meet its debt payment obligations.
Before 1917, the debt ceiling did not exist, but after World War I Congress implemented the debt ceiling following the Second Liberty Bond Act of 1917. This allowed the United States Treasury to accumulate debt and issue bonds as long as it was below the debt ceiling. In subsequent years, the debt ceiling was raised from $125 billion in 1942 to $300 billion in 1945, which was later reduced very slightly to $275 billion in 1946. The policy has seen many shifts in the past decade shifting 74 times from 1962 to 2011 and even more since then to today in 2021.
The Current Debate
Currently, the debt limit and its existence, in general, are being heavily debated on the federal level. The US has technically already hit the debt ceiling in July and the Treasury Secretary, Janet L. Yellen has called for many policies to buy time, but the impending issue is that by mid-October, the US will inevitably run out of emergency ways to pay their bills. Janet Yellen has voiced on Thursday this week that she supports the idea of repealing the national debt ceiling altogether.
On Wednesday of this week, the House passed a debt ceiling suspension bill, but this attempt to mitigate the effects of unpayable debt to avoid a government shutdown is expected to not be reciprocated by the Senate.
The increased political polarization in the US has also played a role in making this situation dire. Republicans are adamant about making sure that this situation is dealt with by Democrats who hold the majority and whose prospects include government social programs such as climate relief and more that incur debt separate from the notions of the Republican party. Republicans continue to insist that Democrats raise the ceiling on their own as the debt incurred for social programs comes directly from the basis of their 2022 midterm election strategy.
Without increasing or suspending the debt ceiling in the US, a government shutdown is a possibility and the inability to pay off bills accumulated will loom over the government. The stakes are incredibly high for this debt limit issue and will be felt on both a large, macroeconomic level and an individual level. Without the ceiling being suspended or raised, there may be a spike in interest rate levels and a massive dip in stock market prices. Additionally, individuals will feel these effects on a case-by-case basis especially those who rely on government programs such as Social Security, food for low-income families, Medicare, and more as government spending will have to come to a complete halt.