The US raises debt ceiling towards preventing bad scenario

Thursday, 2021-12-16 18:28:21
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A session of the US House of Representatives in Washington, DC. (Photo: AFP/VNA)
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NDO – The bill of raising the debt limit by 2.5 trillion USD to 31.4 trillion USD has been approved by the US Congress, in an effort to avoid the federal government’s debt default.

The controversial issue between Democrats and Republicans has been temporarily resolved. However, the world's number one economy needs a long-term solution to avert unpredictable risks.

With 221 “yes” votes and 209 “no” votes, the US House of Representatives approved the bill which was also passed by the Senate in a 50-49 vote. Thus, after being given a “green light” by both houses of the US Congress, the bill will be sent to President Joe Biden for a signature. The public debt ceiling is the total amount of money that the US government is authorised to borrow for spending on the public issues, such as social security, health benefits, debt and interest payments, among others.

US Secretary of the Treasury Janet Yellen admitted that if the US government defaults on its debt, it will be a dire outcome. On October 14, the US President signed legislation temporarily raising the government's borrowing limit to 28.9 trillion USD, thereby contributing to somewhat reducing the pressure of the federal government’s debt default. It allowed the raise of the public debt limit by 480 billion USD.

The public debt ceiling has been always a controversial topic among lawmakers in both houses of the US Congress. Democratic leaders have repeatedly emphasised that the public debt ceiling could cause the US to default, causing a series of severe economic consequences, such as the loss of six million jobs, the erasing of about 15 trillion USD in household wealth, and the increase of mortgage payments and other debts. However, the Republicans in Congress initially opposed raising the public debt ceiling as well as rejecting President Joe Biden's plans to increase spending and tax policies, making it difficult for Democrats on the proposal to raise the public debt ceiling.

Leaders of the Democratic majority in the Senate said raising the debt ceiling would meet the government’s spending needs until 2023. In the context of the Democratic proposals facing many obstacles from a number of Republicans, the US Senate voted to pass a one-time bill that would allow Democrats to raise the nation's debt ceiling without a Republican vote after it “passed” the House of Representatives. According to the regulations, raising the public debt ceiling requires at least 60 of the Senate's 100 members, which means that it must be supported by a number of Republican parliamentarians. However, under the newly-passed law, the bill of raising debt ceiling only requires all the votes of congressional Democrats, without the votes of Republicans.

The raised public debt ceiling will help reduce the risk of default in the short term. However, according to experts, the US needs a long-term solution to avoid facing the risk of default. If this scenario happens, the interest rates will be spiked. As a result, the confidence in the US’ ability to finance its obligations on time will be reduced and the payments for social security will be delayed, causing unpredictable consequences.