The clock was ticking fast for the United States government as it hurtled towards a critical impasse that could have far-reaching consequences for the economy. While the US debt ceiling continued to balloon to its limit in January this year, lawmakers in Congress have to once again face the daunting task of deciding whether to raise the US debt ceiling or reap the consequences of failing to act on it – plausibly triggering a catastrophic default in the nation’s debts, upending the embrittled balance of the global economy or leading to the US government shutdown.
While the sentiment of 2022’s downturn was pinned on the formidable rise of inflation and interest rate hikes, markets had started to rally in mid-October.
Amid pessimism lingering on the heels of recession fears, the US government will need to dictate a resolution for the US debt ceiling and the economy no later than August 18th, 2023 to avoid a crisis. Up to the time that the resolution makes headway, inflation takes a backstage on major US worries as the US debt ceiling resolution behooves to be the short-term market driver. But, what is the debt ceiling and what is the impact of the debt ceiling on the US economy and GDP?
The Interminable Rift Between US Debt Ceiling And Economy: Debt Ceiling Explained
Every year, the government splurges more than it amasses in taxes. This deficit is then rife by borrowing, accumulating over time. That’s the US debt.
The United States has a legal limit, a cap on the amount of federal debt that can be borrowed unless Congress winches up the ceiling. The current limit on outstanding US federal debt is $31.4 trillion. And the government now might need to raise the US debt ceiling. Let that sink in.
Ever since the federal government hit the limit on January 19th, it had been taking ‘extraordinary measures’ to ensure spending without angst about the US debt ceiling. But, the US Treasury had believed that it could only stave off default on its diapason through early June.
Since the 1960s, Congress had considered lifting the hood through a fair, routine vote – raising the US debt ceiling a total of 78 times till 2021. However, in recent times, the debate has pivoted acrimoniously, by virtue of the growing partisan divide in Congress.
US Debt Ceiling To Government Shutdown? Plausible Panaceas And Consequences
The possible prerogatives of Congress to not let the US debt ceiling impact the economy could be:
> A political negotiation is struck with the other half of the bipartisan, who may demand a reduction in federal spending.
> New debt being issued only in unconventional circumstances.
> More extraordinary measures that may prioritize the lenders who need to be dealt with first.
It is even important to comprehend a paucity. Even if the US debt ceiling is lifted swiftly, the worst-case scenario could also be privy to lasting damage. The financial markets could likely experience disruptions every time the US debt ceiling reaches its deadline in the future, consequently affecting businesses with household confidence taking time to abate.
If the impasse turns into a dragfest, market conditions would continue to worsen, amid growing concerns for default pressurizing the US government with mounting legal and political clashes. The controversies apropos of the direct negative economic impact of a protracted sharp cut in federal spending would snowball.
