Questions and Answers
In what year did the U.S. Congress pass a budget deal that raised spending and suspended the debt limit for two years?
2019
What is the estimated federal government deficit for the budget year ending in September 2021?
$2.7 trillion
What is the projected time frame for the U.S. to reach its debt limit if Congress does not act to raise it?
Between October 15 and November 4
What is the total amount of debt added to the previous limit of $22 trillion since the 2019 tax cuts and pandemic spending?
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What measures has the Treasury used to avoid a default once the debt limit is reached?
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What is the potential consequence of a default on the U.S. economy?
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Why did Congress pass a law in 1917 to set a debt limit?
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How many countries have a debt limit, similar to the United States?
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What is the reasoning behind the Republican Party's stance on raising the debt limit?
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What is Democratic Congressman Bill Foster's proposal regarding the debt limit?
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What is Senate Republican leader Mitch McConnell's offer to Democrats regarding the debt limit?
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Why did the U.S. Congress initially permit borrowing only for special reasons?
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Study Notes
US Debt Limit Situation
- 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.
History of the U.S. Debt Limit
- 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.
International Comparison
- 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.
Political Dynamics of the Debt Limit
- 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.
Recent Developments
- 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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Description
Quiz about the US debt limit, including the 2019 budget deal and its impact on the nation's debt.
