The debt ceiling debate hits pause in Washington but has less than two months to find another solution.
By Pulse Staff
The U.S. Senate has agreed to a temporary extension to the American government’s debt ceiling. This temporarily averts a historic crisis the country faced after U.S. Treasury Secretary Janet Yellen told congress in late September the U.S. could run out of money around Oct. 18. She says the money is needed not for any potentially new debt, but for current debt.
University of Findlay Assistant Professor of Economics and Finance Dr. Gregory Arburn says right now the U.S. is spending more money than it is making.
“Currently the debt ceiling is at $28.8T,” Arburn said. “The U.S. GDP is right about $23 T. So, we just recently in the last couple years, maybe just a couple months ago, extended the debt ceiling and got into a situation where our public debt is over 100% of GDP.”
Arburn says no one has said precisely how much they want to raise the debt ceiling. CNN reports the new deal raises it by $480B, which will get the U.S. to Dec. 3. While the debt ceiling extension was needed for the current bills, the proposed infrastructure deal adds another complication to the government’s bottom line.
“But if we’re in the limit of the $28.8T and they’re wanting to spend $3.5T on something (like the) infrastructure project, that is going to take it up over 30%. We’re going to be in over 140% debt to GDP,” Arburn said. “We have never been there before.”
Arburn says the debt ceiling issue is important because it could potentially impact the value of a dollar globally.
“The dollar is well respected. And the dollar has that reserve currency status and there really isn’t anything else out there that can replace it,” Arburn said. “I mean in terms of the size, the breadth, the depth, the sheer quantity of US dollars that circulate globally to satisfy trade is a lot.”
According to businessinsider.com the debt ceiling was introduced in 1917. It was supposed to curb government spending. Once the government hits the ceiling, Congress can raise it and has done so 57 times in the last 50 years. Or congress can temporarily suspend it, which means it still has to deal with the issue down the road. This was the option Senate voted on and passed Oct. 7. But if the government doesn’t act again by Dec. 3, the country could default on its debt.
“It could very negatively affect the value of a dollar. If we don’t make our coupon payments on our debts that would be the first time in the history of the United States that that’s happened,” Arburn said. “That would be a bad thing.”
If the U.S. government can no longer borrow money it could place payments on a multitude of programs in jeopardy.
“There’s several things the government pays to the extent of people don’t get their pension and don’t get their Social Security check,” Arburn said.
ABC News reports that could mean stopping or delaying not only Social Security payments for 15 million seniors, but paychecks for U.S. military service members and postal workers and other federal employees. The same could happen with veterans’ benefits. It could lead to a hike in interest rates, which would affect personal loans for everyone.
Yellen has suggested getting rid of the debt ceiling so Congress doesn’t have to have this debate every time the bills come due. Arburn says he understands that idea but the founding idea to keep government spending in check outweighs the positives.
“We keep getting in the situation where we have to keep raising it. Yeah, I suppose we have to keep the debt ceiling in place even though we keep moving the line in the sand,” Arburn said. “If government were responsible enough we wouldn’t keep having to put a limit on the checking account, right?”
For now, he thinks Congress will come up with a solution.
“My guess is at the end of the day, they’ll get it (the debt ceiling) taken care of,” Arburn said.
The U.S. House of Representatives will vote on the extension Tuesday, Oct. 12 then the bill will go on the President Joe Biden.