US Debt Limit Situation

Study Notes

In August 2019, the US Congress passed a budget deal that raised spending and suspended the debt limit for two years.
The deal allowed the government to borrow money, which added to the previous debt limit of $22 trillion.
As of 2021, an additional 6.5trillionhadbeenborrowed,increasingthenation′sdebtlimitto6.5 trillion had been borrowed, increasing the nation's debt limit to 6.5trillionhadbeenborrowed,increasingthenation′sdebtlimitto28.5 trillion.
The Congressional Budget Office estimated a federal government deficit of $2.7 trillion for the budget year ending in September 2021.
The US government ran deficits every year from 2016 to 2020.
The US technically reached its debt limit at the end of July 2021.
The Treasury used "extraordinary measures" like delaying some payments to employees' retirement funds to avoid a default.
Unless Congress acts to raise the debt limit, the US will likely reach the limit between October 15 and November 4, 2021.
A default could raise borrowing costs as investors will demand a higher rate of return on US debts.
Even a short-term default could threaten the country's current economic recovery.

Before World War I, the U.S. Congress only permitted borrowing for special reasons, such as the building of the Panama Canal.
In 1917, Congress passed a law that set a debt limit, providing the Treasury with flexibility in dealing with the national debt to pay for the war.

The U.S. is one of few countries with a debt limit, alongside countries like Denmark.
Denmark sets its borrowing limit so high that a default is not really possible.

For many years, raising the debt limit was not an issue in the U.S.
The Republican Party has only supported increasing the debt limit while it has controlled the White House.
The party has argued against raising the limit under Democratic administrations.

Democratic Congressman Bill Foster of Illinois introduced a bill to end the debt limit, but it is not guaranteed to pass with the currently divided legislature.
Senate Republican leader Mitch McConnell offered an emergency debt limit extension into December to avoid a default, which the U.S. would need to deal with again by the end of the year.

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