A global and financial crisis may be on the horizon due to America’s overwhelming debt and inability to negotiate a way to pay it back.
You’ve likely heard a thing or two lately about the “debt ceiling.” It’s the limit on how much debt the United States treasury can have on things like government spending and the current number resides at $31.4 trillion. This is because congress and the president authorize more spending through the treasury than the government is able to make back.
In order to pay for the debt, the U.S government issues bonds, where citizens, corporations, governments and other institutions give money to the U.S government in return for a certain amount of interest. They can also do things like lower government spending and raise taxes.
The government has always gotten close to hitting the debt ceiling but it’s always risen as needed. This year, the debt ceiling was reached in January and Congress has still been unable to come up with a deal to avoid defaulting on their debt.
Defaulting on the debt is really the worst case scenario and would send the global economy into a major financial crisis. Treasuries are thought to be the safest investments. They’re built on a long-standing and well respected institution whose credibility in the global marketplace would be absolutely shattered by such an event. It would bring down the value of the U.S dollar, drop stock prices, raise inflation and possibly bring about a global financial crisis. And if congress can’t come to a deal before June 1, we will default on our debt, something that has never happened before in American history.
With such cataclysmic consequences, one would think Congress would be rushing to come to an agreement. However, the debt ceiling and its negotiations are highly political. Speaker of the House, Kevin McCarthy and President Joe Biden have been unable to come to negotiate an agreement. McCarthy and the Republicans want to make the money back by slashing government spending while Biden and the Democrats want to close tax loopholes for the wealthy and the oil and pharmaceutical industries.
One way that McCarthy was able to secure his seat as Speaker of the House was by conceding to a number of compromises which weakened his power as speaker. One of those concessions is that any group of five lawmakers is able to force a “motion to vacate” which would bring about a vote to oust McCarthy as speaker. Because of this, McCarthy is beholden to his detractors to settle a deal that satisfies them which is causing the negotiations to prolong further.
Unfortunately, the average American just has to sit back and watch as the government scrambles to make a deal. However, if you’d like more information on how to protect yourself financially in the case of a default you can click here.
