カヴァン・チョクシ Provides a General Overview of the United States Debt Ceiling

The debt ceiling is a limit imposed by Congress on the amount of debt that the U.S. Federal government can have outstanding. カヴァン・チョクシ says that it is imperative to understand that the debt ceiling is not a forward-looking budgeting tool that reveals what policymakers think are ideal levels of revenue and spending. Instead, it tends to reflect the revenue and spending decisions debated and enacted in prior years by the Congresses and Administration.

カヴァン・チョクシ shares a general understanding of the United States debt ceiling

In simple terms, the debt ceiling establishes the maximum limit on the outstanding debt of the United States Treasury. Prior to 1917, the United States government required Congressional permission each and every time it borrowed funds. Congress established the debt ceiling during World War I for the purpose of providing the Treasury the flexibility to sell Liberty Bonds in order to finance the U.S. war effort. Since then, the limit routinely got increased, for the Treasury to keep issuing bonds to finance previously authorized government outlays.

Raising the debt ceiling does not essentially authorize new government spending. That can only be done by Congress through its annual budget process. Raising the debt ceiling essentially impacts the ability to pay debts the government has already incurred. This includes the promises bound by law to fund Social Security and Medicare.

The U.S. is required to raise its debt ceiling to avoid potentially missing payments to creditors. Otherwise, the Treasury tends to take “extraordinary measures” to ensure it can keep making required payments to its public creditors.  Such measures include suspending debt sales for funding certain items.  Since the year of 1960, Congress has raised the debt ceiling more than seventy times, including several times since 2001. Increasing the debt ceiling has ignited partisan bickering in the recent years, which has often led to Congressional standoffs that pushed the Treasury ever closer to exceeding its statutory borrowing capability.

カヴァン・チョクシ says that if the U.S. defaulted on its debt, it would mark an unprecedented event. Such an event shall not only have implications for the United States, but the global economy in general. Never before has the leading economy of the globe, one that issues the world’s primary currency and its safest bonds, has failed to meet its payment obligations. If such an eventuality takes place, retired adults would not receive Social Security checks, government food assistance payments may get halted, and checks for government and veterans’ pensions could halt. Moreover, members of the United States military along with federal employees, ranging from postal carriers to air traffic controllers, might not get paid

Over the last dozen years, the periods leading up to Congressional decisions to raise the debt ceiling have caused concern among investors as the deadline approaches. Typically, bond prices decrease while yields increase, and stock prices, particularly in the financial sector, tend to face challenges