Congress sets the amount of money the US Treasury Department can borrow, and since it has raised, extended or revised the debt ceiling 78 times -- including in , when it voted to suspend the debt limit for two years.
That two years was up on Aug. If Congress doesn't act, the US government will be unable to meet all its obligations in full and on time somewhere between Oct.
After pressure from President Joe Biden and finance executives earlier in October, Senate Minority Leader Mitch McConnell said he would "allow Democrats to use normal procedures to pass an emergency debt limit extension at a fixed dollar amount to cover current spending levels in December," according to a statement he posted on Twitter.
Although the Senate finally voted to raise the debt limit on Oct. The House of Representatives also approved the bill to avert the default on Oct. Republicans continue to insist that Democrats use budget reconciliation to raise or suspend the debt limit over the long term. Created by the Congressional Budget Act of , budget reconciliation allows Congress to expedite tax, spending and debt limit legislation.
Importantly, reconciliation bills aren't subject to the filibuster in the Senate; instead, they require only a simple majority of votes. As such, all 48 Senate Democrats, the two Independents who caucus with them and tie-breaker Vice President Kamala Harris would have to vote in favor of the bill for it to pass. Congress faces two key issues, one of which was resolved on Sept. First, Congress needed to pass a spending budget to fund the US government to avert a shutdown.
The other issue is the suspension of the debt ceiling, which would allow the US Treasury to borrow more money to pay its ongoing financial obligations. To avert a government shutdown, Congress needed to pass some sort of government funding package by the end of September.
However, legislators haven't yet hashed out a full budget. To avoid a shutdown, on Sept. But the House's resolution included a debt limit suspension for the US Treasury, a provision that Republicans in both the House and Senate opposed. Both chambers of Congress approved a measure on Sept. Biden signed the bill that evening. However, the debt ceiling issue was left to the side for now, leaving Congress with the significant problem still on the table.
Although Republicans and Democrats alike voted to lift the debt ceiling on three occasions while Donald Trump was president, Republicans have framed passing another suspension as enabling a "spending binge," in the words of Sen. On Sept. All insurance products are governed by the terms in the applicable insurance policy, and all related decisions such as approval for coverage, premiums, commissions and fees and policy obligations are the sole responsibility of the underwriting insurer.
The information on this site does not modify any insurance policy terms in any way. Lawmakers on Capitol Hill are on the clock to increase how much money the federal government can borrow. For centuries, the U. The Treasury Department finances that extra spending by selling government securities. To address the issue, Congress has to vote to raise or suspend the limit. But what makes this situation more dire is how close lawmakers are to running out of time — and how deeply divided they remain.
The U. This is going to be an eleventh-hour situation. Much worse could be another financial crisis. If the debt ceiling binds, the Treasury Department might decide to delay — or even temporarily halt — payments to millions of Americans and agencies. That could be anything from Social Security checks, advance Child Tax Credit CTC monies, Medicare disbursements to health care providers, as well as payments to agencies, troops, state and local governments and contractors.
The agency wanted to prioritize making interest payments and avoid default. Nearly 50 million seniors could stop receiving Social Security checks for a time. Troops could go unpaid. Millions of families who rely on the monthly child tax credit could see delays. America, in short, would default on its obligations. The federal government is able to borrow at a relatively lower interest rate than other governments in the world because Treasury securities are viewed as a safe and liquid investment.
Once that view is upended, however, investors might demand a higher premium to protect themselves from risk. Leading up to the event, they could start dumping Treasury securities out of fear that the U. Any Treasury security sell off would cause yields to rise, bringing up borrowing costs on a wide array of loans, from the mortgage rates that are directly tied to the year bond, as well as credit card and auto loan rates.
If the debt ceiling were to bind, markets would likely whipsaw, potentially enduring immediate and steep losses that might take a while to recover — even if the situation is quickly addressed. By the end of that year, the index only recovered half of the ground that it lost. All of that could threaten corporate profitability, and firms that have increased exposure to government spending might take an additional hit.
Those could be firms that have contracts with the federal government, as well as insurance firms that derive a certain portion of their revenue from Medicare payments. But if it does happen, the event would likely be very short-lived. Experts describe default as having a ripple effect. Treasury market is like the circulatory system of the global economy. What does it mean if Congress fails to raise the debt limit? Included in that list are programs such as Social Security, Medicare and Medicaid, plus the paychecks of 1.
The recent Child Tax Credit payments would be paused and funding for pandemic mitigation efforts would end. Grants that states receive that cover things like school programs, Medicaid and public transit would dry up. Nearly a third of state spending nationally comes from the federal government. For instance, if an individual fails to pay his or her bills, they become a credit risk, meaning it is more difficult to borrow money because creditors are not sure they will be paid back.
The same things happen when a country cannot pay its bills. Its credit rating falls and borrowing money becomes more expensive because the government will be charged a higher rate of interest on loans. If the limit is not raised, would the government prioritize who gets paid first? When was the last time it was increased? A budget measure passed in suspended the debt limit for two years. That suspension expired on Aug.
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