How US Narrowly Averted A Default
World’s superpower, the United States was on the brink of getting defaulted until 7th October when the Senate agreed to push the debt ceiling. So what is debt ceiling and has the US averted the debt crisis? Read the story to find out.
Crux of the Matter
Nearly fifty million seniors could stop receiving social security payments or see them delayed. Our troops would not know when they would get their next paycheck. We have thirty million families who rely on the monthly Child Tax Credit. And they would not receive that relief at least on time. In 2011 when the debt ceiling was raised, we saw a marked increase in interest rates, a marked drop in the stock market and when US interest rates go up and the credit rating of the US was downgraded, that means higher interest payments for everyone who has a loan.
Treasury Secretary Janet Yellen’s take on US’ potential debt default
What is Debt Ceiling?
It is the maximum amount that the US Government can borrow to pay its debts and expenses. At present federal debt stands at $28.43 trillion. Current resources are expected to get depleted by 18th October.
The Issue
On 27th Sep, Senate Republicans blocked a spending bill. The bill would have availed appropriate funding to the US Govt. Moreover, it also would have waived off the debt ceiling till December 2022.
Reason For Opposing The Ceiling?
Voting for the bill would have paved the way for Biden’s multi dollar spending plan. Opposition led by Mitch McConnell, insist for Democrats to raise the debt limit on their own via budget reconciliation process.
However, Democrats disagree on doing so. The reason being that the borrowed funds will be utilized not just for Democrats spending but also for the obligations made by the Republican Government in the past. As per US Treasury data, Congress has raised/suspended the debt ceiling 78 times since 1960.
The Close Save
McConnell has agreed to temporarily suspend the debt limit. On 7th October, legislation to raise the debt limit by $480 billion was passed. However the crisis isn’t fully averted. The approved limit is expected to cover the US only till 3rd December, 2021.
What If The US defaults?
As reported by Forbes, a default on national debt may lead to:
4% decline in economic activity.
Loss of $15 trillion of household wealth.
Wash out of 6 million jobs.
The Recurrent Crisis
Severe hike in lending rates.
Fall of US’ credit and stock markets.
Hefty devaluation of Dollar.
Summing up, the US can slip off into an economic recession if the debt crisis do not avert.
Curiopedia
Title 11 of the United States Code, also known as the United States Bankruptcy Code, is the source of bankruptcy law in the United States Code. Title 11 is subdivided into nine chapters like Liquidation, Reorganization and Creditors, the Debtor and the Estate
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