October 4, 2021
The clock is ticking on the government’s cash balance.
The debate on the federal debt ceiling, which is the government’s Congressionally approved spending limit, is an ongoing political game of hot potato. Congress gets dangerously close to the deadline almost every time it approaches as holdouts for pet projects and threats on future funding circulate.
The current limit is $28.4 trillion, which you think would be enough. But for the U.S. economy to avoid disaster, the number needs to increase. In June, Treasury Secretary Janet Yellen said if the ceiling isn’t raised or suspended, the country will default on its debt as early as this month. Luckily, a deal was reached (though only until December).
We have never defaulted, primarily because the government can print money at will. Plus, there is enough demand for U.S. bonds to finance spending. So, you’d think it would be tough to run out of money, but Congress is trying hard.
So, what happens next?
Further uncertainty could lead markets to pull back like at the end of September. A credit crisis could emerge too, even if the debt ceiling is raised.
Millions of Americans could be strapped for cash if Social Security checks stop for a while. Our military could go unpaid. Mortgage payments, car loans, credit card bills, and everything else that’s purchased with credit would be costlier if we default.
This is stuff we don’t often think about. Sure, the country can borrow more money at cheaper rates than almost any other nation in the world. However, defaulting would jeopardize this desirable position.
Thankfully, I don’t think it will happen. The debt ceiling has become a big negotiating chip in Washington. I doubt it would get to the point where we’d feel the real impacts.