Factbox: Congress faces US debt ceiling drama once again

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A view of the United States Capitol in Washington, United States on January 17, 2021. REUTERS / Erin Scott

WASHINGTON, Sept.22 (Reuters) – Democrats and Republicans in the U.S. Senate are stuck in a partisan deadlock over how to temporarily remove the $ 28.4 trillion debt ceiling, a political drama that could pose risks to the United States. credit rating of the US government, financial markets and the economy.

The current debt ceiling, which came into effect on August 1, sets the borrowing limit for the US Treasury. The Treasury Department will exhaust its borrowing authority sometime in October, unless the debt ceiling is raised, which poses the risk of default.

WHAT ARE THE EXPENSES?

Senate Democratic Majority Leader Chuck Schumer and Republican Leader Mitch McConnell have publicly debated whether debt has reached the limit due to President Joe Biden’s agenda or initiatives taken during former President Donald’s tenure Trump, including the sweeping tax cuts adopted in 2017.

The truth is that both sides have contributed to the increase in debt over the past few years. Tax cuts passed by a Republican-controlled Congress early in Trump’s presidency added about $ 1.8 trillion to the country’s debt, according to Moody’s Analytics. Last year, the two sides agreed to spend around $ 3 trillion in spending aimed at tackling the COVID-19 pandemic. And Biden Democrats earlier this year completed another round of coronavirus relief worth around $ 1.9 trillion.

CATASTROPHIC CONSEQUENCES

A dire fate could be in store for the US economy if the deadlock leads to default. The government relies on continued borrowing to service its debt, and without permission to borrow more, the treasury could default.

Moody’s Analytics report warns of nearly 4% drop in economic activity, loss of nearly 6 million jobs, nearly 9% unemployment rate, stock sell-off that could wipe out $ 15 trillion in household wealth and soaring interest rates on mortgages, consumer loans and corporate debt.

Aware of these risks, McConnell said he believes the debt ceiling should be raised, but Democrats should do it themselves without help from Republicans using a maneuver called budget reconciliation.

A RETURN IN 2011?

Months of partisan debt ceiling scams in 2011 prompted Standard & Poor’s Corp to lower the U.S. government’s credit rating for the first time in history.

A volatile stock market had its worst week since the 2008 financial crisis and the cost of debt rose as investors fled the US Treasury bond market. Ultimately, Congress agreed to lift what was then a $ 16 trillion debt limit before a deadline set by the Treasury.

OTHER SUSPENSIONS

The debt ceiling, originally intended to impose fiscal discipline on lawmakers, has been changed by Congress 98 times since the end of World War II and 17 times since 2001, according to the Congressional Research Service.

Most of the increases have been without drama. But the crisis erupted in 2013, when Republicans opposed increasing the cap in an attempt to undermine the Affordable Care Act, signed by former President Barack Obama. This prompted Fitch Ratings to put the US government on negative watch.

The most recent debt limit suspension took place in the 2019 bipartisan budget law, which suspended the limit until August 1, 2021.

Reporting by David Morgan; additional reports by Richard Cowan; Editing by Scott Malone and Cynthia Osterman

Our standards: Thomson Reuters Trust Principles.


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