Recently, the United States Treasury Secretary Janet Yellen has been reaching out to business and financial CEOs. Her intent has been to explain what the impact would be if the U.S. defaults on its debt. On Monday, at least two unnamed sources stated this to be fact as they know about the debt ceiling situation.
One such source has said that Secretary Yellen has been having one-on-one conversations with these leaders to let them know of the “dangerous consequences of the current brinkmanship”.
A Financial Situation
In fact, this serious situation has caused Secretary Yellen to delay her plans to travel to Japan for the Group of Seven meeting where other financial secretaries are meeting. Just recently on ABC News, Yellen warned Americans that if Congress fails to raise the debt ceiling, currently at $31.4 trillion, could activate a constitutional crisis.
Yellen has stated that talks about the crisis should happen, “with a gun to the head of the American people”. She makes this point as the Republican lawmakers have insisted that they solve the problem through huge spending cuts. However, the Democrats have opposed such measures.
Many countries do not put a hard limit on what they can borrow. This is different from the United States which does put a hard limit on its spending. That is because the government spends a lot more than it takes. Therefore, congressmen have to raise the debt ceiling every so often.
President Joe Biden himself has stated that Congress has a duty to raise the debt ceiling. He plans to meet with Republican Senate Minority Leader Mitch McConnell, House Speaker Kevin McCarthy, and top Democrats at the White House in order to make a deal. Over the course of the last few weeks, the Biden administration has spoken to many business owners to work on convincing Republican lawmakers to raise the debt ceiling without the huge spending cuts.
Yellen stated in early May that the U.S. Treasury may not be able to pay off the bills that the government owes by June 1st if the government can’t increase the federal debt limit. She and many economists have stated time and time again that a default on the United States debt would result in job losses up into the millions. Meanwhile, payments on mortgages, vehicles, and credit cards would also get higher.
Let it be known that Congress has always raised the debt limit when needed since 1960. 78 times has Congress raised the debt limit in some capacity. It has happened 49 times under Republicans and 29 times under Democrats. Both parties have recognized throughout modern American history of the necessity of having this happen.
What is the Debt Ceiling?
In case you are unaware of all of this means, let’s break it down a bit. According to the Treasury website, “The debt limit is the total amount of money that the United States government is authorized to borrow to meet its existing legal obligations, including Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and other payments.”
As stated earlier in the article, a failure to increase the debt limit would create a massive economic consequence that would affect the entire planet. Should the government default on its obligations, it would cause an unprecedented event in the country’s long history. This would cause another financial crisis, think of the one in 2008-2009. Thus, the jobs and savings of millions would be affected. Plus, having navigated its way through recession due to inflation and covid, the United States would basically be back at square one with its economic woes.
What Does the Debt Ceiling Mean for Us?
You may have been keeping track of this constantly developing problem or you may just learned about it right now. Regardless, you need to be prepared for a possible economic crisis. Depending on what industry you work in, you may want to talk to fellow co-workers or your bosses about what they think of the situation.
Also, look online for resources for you to navigate a financial crisis. In fact, speak with your parents about it. They went through the recession of 2008-2009, they may have pointers for you!
Currently, the government is in a sticky situation. While Democrats think that the debt ceiling should be raised, as it has been throughout the years, the Republicans think differently. The Republicans believe that vast spending cuts would help curb the problem. However, it has been noted that this would not work.
You may be asking yourself what to do in this situation. Call your representatives to tell them how you feel about the debt ceiling being raised. It is your duty as an American citizen to tell your congressmen your thoughts. We are living through unprecedented times. Therefore, be sure to have all of your wit and skill with you. That way, you can navigate what could be possible hard times ahead.