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The debt ceiling drama, explained in 2 minutes

The United States hit the debt ceiling set by Congress on Thursday, forcing the Treasury Department to begin taking extraordinary measures to keep the government paying its bills and increasing pressure on Capitol Hill to avoid a catastrophic default.

The battle lines for the high-stakes fight have already been set. Hard-line Republicans, who have a huge hold on the House because of the party’s slim majority, have demanded that lifting the borrowing limit be tied to spending cuts. The White House responded that it will not offer any concessions or negotiate on raising the debt ceiling. And with the solution to the debt ceiling drama in the hands of lawmakers, fears are growing that partisanship could cause the nation to default on its debt for the first time, or come dangerously close to doing so.

Treasury Secretary Janet Yellen wrote a letter to House Speaker Kevin McCarthy on Thursday informing him that the nation’s outstanding debt is at its statutory limit of $31.4 trillion and that the agency will implement extraordinary measures so that it does not default on its debt, which would have enormous consequences for the US economy, global financial stability and many Americans. He said the measures will last until June 5.

That gives Congress time, but how long the emergency measures can last is subject to “considerable uncertainty,” he wrote, stressing that it’s challenging to forecast how much the federal government has to pay off financial obligations and how much revenue it will need in months. . towards the future

“I respectfully urge Congress to act quickly to protect the full faith and credit of the United States,” he wrote.

The announcement follows Yellen’s warning last week about the approaching debt limit and temporary relief from emergency measures.

But his missive has failed to spark a bipartisan discussion so far. Instead, both Republicans and Democrats reaffirmed their hardline positions over the past week.

National Economic Council Director Brian Deese on Thursday called on Congress to meet America’s obligations by raising the debt limit, warning against the “economic chaos” that could ensue if Congress fails to do so.

“This is about economic stability versus economic chaos,” Deese told Kaitlan Collins on “CNN This Morning,” calling it “a basic and fundamental obligation of Congress.”

He added: “Even the specter of the United States defaulting on its obligations hurts the economy.”

McCarthy must walk a fine line as any member can ask for a motion to vacate the speaker’s chair, one of several concessions he made to win the top post after 15 rounds of voting earlier this month.

For now, he is leaning toward using the debt ceiling crisis to cut spending and balance the US budget. On Tuesday, McCarthy rejected Democratic calls for a net increase in the debt ceiling without any conditions, something Congress has done time and time again, including under then-President Donald Trump. The speaker told reporters on Capitol Hill that the Biden administration should start negotiating before this summer, when the US could default.

“Why don’t we sit down and change this behavior to put ourselves in a stronger fiscal position?” McCarthy said.

President Joe Biden and McCarthy have not yet spoken on Thursday about the debt limit, according to an official familiar with the situation.

Right-wing Republican Rep. Andy Biggs went even further in a tweet on Tuesday, writing: “We cannot raise the debt ceiling. Democrats have carelessly spent our taxpayer dollars and devalued our currency. They have his bed, so they have to get into it.”

The White House blasted the Arizona Republican’s “astounding and unacceptable position” on Wednesday and once again rejected calls to cut spending as part of a deal on the debt ceiling.

While there were no meetings with congressional leadership to announce at this time, White House press secretary Karine Jean-Pierre told reporters that the administration has reached out to “all members, on both sides of the aisle,” however, “there won’t be any negotiations on the debt ceiling; we won’t, it’s their constitutional duty.”

Meanwhile, GOP Senate Leader Mitch McConnell tried to reassure Americans that a deal will eventually be reached with the Biden administration. He stressed that the US must never pay its debt and never will.

“No, I wouldn’t worry about a financial crisis,” he said Thursday at an event in Louisville, Ky., noting that dealing with the borrowing limit is “always a pretty contentious endeavor.”

The debt ceiling, which is the maximum amount the federal government can borrow to finance obligations that lawmakers and presidents have already approved, was last raised in December 2021. Created more than a century ago, it has become a way for Congress to restrict loan growth, turning it into a political football in recent decades.

The limit increase does not authorize new spending commitments.

The Treasury will begin using two extraordinary measures to allow it to temporarily continue funding the operations of the federal government, Yellen wrote on Thursday. They are mainly accounting maneuvers behind the scenes.

As part of the debt-issuance moratorium period, the agency will begin selling existing investments and suspending reinvestments in the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefit Fund. In addition, it will suspend the reinvestment of a government securities fund from the Federal Employees Retirement System Thrift Savings Plan.

These funds are invested in special issue Treasury securities, which are subject to the debt limit. The Treasury’s actions would reduce the amount of outstanding debt subject to the cap and allow it to temporarily continue to pay the government’s bills on time and in full.

No retirees or federal employees will be affected, and the funds will be integrated once the impasse ends, Yellen wrote.

As part of his concessions, McCarthy promised to pass a proposal in late March to tell the Treasury what payments should be prioritized if the debt ceiling is breached, Republican Rep. Chip Roy confirmed to CNN last week .

Roy, a Texas Republican who is one of the key players in McCarthy’s presidential race, cautioned that the contours of the proposal are still being worked out, noting that there are several different versions of a plan to prioritization of payments circulating within the House GOP.

But choosing to pay one set of obligations over another could lead to legal challenges as well as political and ethical dilemmas. For example, lawmakers would have to decide which to pay first: monthly Social Security payments to tens of millions of elderly and disabled Americans, salaries for federal and military workers, or interest on the U.S. debt to a multitude of investors, many of them foreign.

Government watchers and economic experts warned that Congress and the president should address the debt ceiling as soon as possible.

“The debt ceiling is too important to turn into a game of chicken, and those with a fiduciary responsibility to govern the nation should never suggest default,” said Maya MacGuineas, chairwoman of the Committee for a responsible federal budget.

“Politicians who are rightly concerned about the nation’s unsustainable debt path should take a hard line against new borrowing and oppose legislation that would add to the debt while offering targeted solutions to control debt that is already is on the books, rather than threatening to default on the bills. on loans that have already been incurred,” he continued.

Given the contentious political environment, a deal would likely be reached very late in the game or incrementally, Moody’s Investors Service said in a report on Thursday. If Congress fails to do so, Moody’s expects the US government to prioritize meeting its debt service obligations on time and in full over other payments.

“However, in our view, a debt ceiling impasse is likely to be resolved before a missed interest payment occurs due to public, political and financial market pressures on Congress that reflect concerns about the potentially serious consequences that a missed payment could have on financial markets and the economy,” the report said.

This story has been updated with additional reporting.

Why is the US in so much debt?

Tax cuts, stimulus programs, increased government spending, and declining tax revenues caused by widespread unemployment generally account for a sharp increase in the national debt.

Who does the US owe money to? Many people believe that much of the US national debt is owed to foreign countries like China and Japan, but the truth is that most of it is owed to Social Security and pension funds here in the US. To see also : Video: What was your first video game?. This means that American citizens own the majority of the national debt.

What happens if the US goes into too much debt?

National security issues. The higher the national debt, the more the United States is seen as a global credit risk. This could affect America’s ability to borrow money in times of increased global pressure and put us at risk of not being able to meet our obligations to our allies, especially in times of war.

Could the US ever pay off its debt?

Can America Pay Its Debt? Since budget deficits are one of the factors that contribute to the national debt, the US can take steps to pay down its debt through budget surpluses. To see also : USS Minneapolis-Saint Paul United States Naval Academy Midshipmen Tour. The last time the US ran a budget surplus was in 2001.

Why does the US have the most debt?

Because the government almost always spends more than it takes in through taxes and other revenues, the national debt continues to rise. To see also : The overlooked gambling problem of college sports: Improperness is ignored as betting rates rise across the country. To finance federal budget deficits, the United States government issues government bonds, known as Treasuries.

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What country is in the most debt?

Japan, with a population of 127,185,332, has the highest national debt in the world at 234.18% of its GDP, followed by Greece at 181.78%.

Which country owes the US the most? Japan is the largest holder of US debt.

What country do we owe the most debt to?

  • Japan Japan held $1.3 trillion in Treasuries as of May 2022, surpassing China as the largest foreign holder of U.S. debt. …
  • china China gets a lot of attention for holding a large portion of the U.S. government debt. …
  • the united kingdom …
  • Ireland …
  • Luxembourg

Which countries has no debt?

S.NoCountriesDebt/GDP ratio
4.Democratic Republic of the Congo15.2%

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Which country has highest debt?

The United States has a problem with its debt, which has surpassed $31 trillion by 2022. That compares to a GDP of $25.66 trillion, according to the Bureau of Economic Analysis.

Which country has the most debt? You might be surprised. According to data published by London-based investment fintech Invezz, Japan, Greece, Italy, Portugal and the United States are the top five countries with the highest level of public debt.

Which country has the lowest debt?

S.NoCountriesDebt/GDP ratio
4.Democratic Republic of the Congo15.2%

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Who paid off all of America’s debt?

President Andrew Jackson Reduces Debt to Zero By selling federally owned western lands and blocking spending on infrastructure projects, Jackson paid off the national debt after six years in office. This actually created a government surplus that Jackson divided among the indebted states.

Who does the US owe all its debt to? After Japan, the four countries with the largest holdings of US debt are China at $967.8 billion, the United Kingdom at $615.4 billion, Luxembourg at $306.8 billion and the Cayman Islands at $300.4 billion.

Has America ever been debt free?

As a result, the United States became debt-free for the first and only time in early 1835 and remained so until 1837. It remains the only time a major country was debt-free.

When did the US pay off all its debt?

In January 1835, for the first and only time, all of the government’s interest-bearing debt was paid off. Congress distributed the surplus among the states (many of which were heavily indebted). The Jackson administration ended up with the country almost completely debt free!

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