5 things people are wrong about the debt ceiling saga: NPR
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The United States lacks both the time and the money to pay its bills.
At some point over the next few weeks, the US may run out of money to pay its bills, risking the prospect of a devastating default.
With time running out, here are the answers to five things people often get wrong about the ongoing debt ceiling saga.
Has the spending spree of President Biden and congressional Democrats left the US on the brink of default?
In a word, no.
The United States can currently borrow up to $31.4 trillion, and political leaders must urgently raise or suspend that debt ceiling or risk leaving the country unable to pay its bills.
But the current national debt has been piling up for years and bears many fingerprints from both Democrats and Republicans. The reality is that the United States needs to borrow money to pay its bills since the government has not balanced its budget since the Clinton administration.
Two unfunded wars, three recessions, a global pandemic and three rounds of tax cuts have all contributed to the tide of red ink.
In fact, of the total debt on the books today, 16% was added during George W. Bush’s eight years in office, 30% was added during Barack Obama’s eight years in office, 25 % were added during the four years Donald Trump was in office – and 12% have been added since President Biden took office.
And the war in Ukraine? Has this contributed to the national debt?
It was negligible at best.
Since Russia invaded Ukraine last year, the United States has committed more than $76 billion to the country, including humanitarian aid, financial aid and weapons.
While this dwarfs the amount of aid the United States sends to other countries, it is a smaller fraction of the GDP some allies have contributed to Ukraine.
It represents less than 5% of this year’s projected deficit and only 2/10ths of 1% of the government’s accumulated debt.
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Will the United States run out of cash on June 1?
It is difficult to accurately predict when the United States will actually be unable to pay its bills. After all, billions of dollars flow in and out of government coffers daily.
Treasury Secretary Janet Yellen has repeatedly said it is impossible to predict a specific time when the money will run out.
However, as the government usually knows when bills are due, Yellen says it’s “very likely” the government will run out of cash in early June, and possibly “as early as June 1”.
Quarterly taxes are due on June 15, so if the government is able to go that far, the influx of new revenue will push the crisis date further into the future.
In addition, the government will benefit from additional leeway under its borrowing limit at the end of June, which would allow it to buy time.
Until now, financial markets generally assume that a deal will be struck to avoid a default. But as the critical moment approaches, investors may become increasingly nervous. If investors begin to doubt the government’s ability to pay its bills, the resulting volatility could put additional pressure on lawmakers to strike a deal.
Is default of payment the same as a government stoppage?
This one causes confusion all the time, even among seasoned NPR reporters.
It’s easy to see why. The threat of a default and a government shutdown are both symptoms of political gridlock, and since they sometimes occur at the same time, they can easily be confused.
But they are not the same.
Government shutdowns happen with some regularity when Congress fails to agree on additional spending to fund the government. They are expensive and impractical. But essential government services continue and lasting damage is limited.
In contrast, the threat of default arises when Congress fails to agree on loan so that the country can continue to pay its bills.
Although the government has occasionally flirted with default – most recently in 2011 and 2013 – it has never failed to pay its bills. This would likely permanently damage the government’s reputation as a reliable debtor and could lead to a permanent increase in borrowing costs.
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Why doesn’t the US completely remove the debt ceiling?
The United States could do it, but it’s more difficult in practice.
The debt ceiling was created by Congress during World War I as a way to simplify government borrowing without legislators needing to approve each individual bond issue.
It might as well be deleted if lawmakers decide. However, this can be politically difficult as it could be seen as a gateway to further deficit spending.
Congress could remove the debt ceiling altogether or declare that necessary borrowing is automatically authorized whenever federal expenditures are approved.
This second option was, in fact, the practice followed for a decade and a half, under the so-called Gephardt rule, named after former Rep. Richard Gephardt, D-Mo., who was tired of cajoling lawmakers to raise the debt ceiling. to pay for expenses for which they had already voted.
Some Democrats called for repealing the debt ceiling last year, before Republicans took control of the House, but President Biden dismissed the idea as “irresponsible”. This set the stage for the current showdown.
Congress has raised the debt ceiling dozens of times, and it rarely comes close to reaching a crisis.
Recent exceptions have come during times of divided government — particularly when the House of Representatives is controlled by Republicans and a Democrat is in the White House, with the GOP using the debt ceiling as leverage to secure political concessions .
In contrast, congressional Democrats have repeatedly agreed to raise the debt ceiling with little drama during periods of divided government, including twice under the Trump administration and three times under the George W. Bush administration. .