House Speaker Kevin McCarthy speaks to members of the media at the U.S. Capitol in Washington, DC, May 24, 2023. The U.S. government will quickly run out of cash to pay its bills unless it can raise or suspend the debt ceiling.Kevin Ditch/Getty Images hide title
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House Speaker Kevin McCarthy speaks to members of the media at the U.S. Capitol in Washington, DC, May 24, 2023. The U.S. government will quickly run out of cash to pay its bills unless it can raise or suspend the debt ceiling.
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America has run out of time and money to pay the bills.
At some point in the next few weeks, the US could run out of money to pay its bills, putting it at risk of a catastrophic default.
In times of substance, here are the answers to five things people often do with the ongoing debt ceiling saga.
Is the excessive spending of President Biden and congressional Democrats bringing the United States to the brink of bankruptcy?
In a word, no.
The U.S. can borrow up to $31.4 trillion, a debt ceiling that political leaders must urgently raise or suspend, or risk leaving the country unable to pay its bills.
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But the current national debt has been building up over the years and bears many fingerprints -- from Democrats and Republicans alike. The reality is that the US has had to borrow money to pay its bills because the government hasn't balanced its budget since the Clinton administration.
Two unfunded wars, three recessions, a global pandemic and three rounds of tax cuts have all contributed to a wave of deficits.
In fact, total debt on the books today increased 16 percent during George W. Bush’s eight years in office, 30 percent during Barack Obama’s eight years, and four An annual increase of 25%. Donald Trump in office - up 12% since President Biden took office.
What about the war in Ukraine? Does this contribute to the national debt?
At best it's negligible.
Since Russia invaded Ukraine last year, the U.S. has been working onThe country's more than $76 billion, including humanitarian aid, financial aid and weapons.
While that's less than the amount of aid the U.S. provides to other countries, it's a smaller percentage of GDP than what some allies provide to Ukraine.
It accounts for less than 5% of this year's projected deficit and just two-tenths of 1% of the government's accumulated debt.
Ukraine's President Volodymyr Zelenskyy addresses Congress at the U.S. Capitol in Washington, December 21, 2022. The United States has provided more than $76 billion in aid to Ukraine, but that is a smaller percentage of GDP than some allies provide in the country.Mandel Ngan/AFP via Getty Images hide title
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Ukraine's President Volodymyr Zelenskyy addresses Congress at the U.S. Capitol in Washington, December 21, 2022. The United States has provided more than $76 billion in aid to Ukraine, but that is a smaller percentage of GDP than some allies provide in the country.
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Will the US run out of cash on June 1?
It's hard to predict exactly when America will truly fail to pay its bills. After all, billions of dollars flow into and out of government coffers every day.
Treasury Secretary Janet Yellen has repeatedly said it is impossible to predict exactly when the money will be lost.
But since the government usually knows when bills are due, Yellen said it was"Very likely"The government will be short on cash in early June and possibly "from 1 June".
Quarterly taxes are due on June 15, so if the government can get it right, the influx of new revenue will push the crucial date into the future.
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In addition, the government will gain additional room to exceed its borrowing limit at the end of June, which will buy more time.
So far, financial markets generally believe a deal will be reached to avoid a default. But investors are likely to grow increasingly nervous as the crunch looms. The resulting volatility could put additional pressure on lawmakers to reach a deal if investors start to doubt the government's ability to pay its bills.
Is bankruptcy the same as a government shutdown?
It's been confusing, even among seasoned reporters at NPR.
It's easy to see why. Threats of default and a government shutdown are both symptoms of political gridlock, and because they sometimes occur together, they can easily be confused.
But it's not the same.
Government shutdowns occur when Congress fails to agree on additional spending to fund the government. They are expensive and inconvenient. But essential government services continued with limited permanent damage.
Conversely, when Congress fails to agree to moreloanSo the country can keep paying its bills.
While the government has occasionally come close to bankruptcy -- most recently in 2011 and 2013 -- it has never defaulted on its bills. Doing so could permanently damage the government's reputation as a reliable borrower and could lead to permanently higher borrowing costs.
A government building in Washington, D.C., is closed due to the government shutdown on December 22, 2018. A government shutdown occurs when Congress fails to agree on additional spending to fund the governmentAndrew Caballero-Reynolds/AFP via Getty Images hide title
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A government building in Washington, D.C., is closed due to the government shutdown on December 22, 2018. A government shutdown occurs when Congress fails to agree on additional spending to fund the government
Andrew Caballero-Reynolds/AFP via Getty Images
Why isn't the U.S. removing the debt ceiling entirely?
The United States can do this, but it is more difficult in practice.
The debt ceiling was created by Congress during World War I to simplify government borrowing without requiring lawmakers to approve each bond issue.
It could easily be removed if lawmakers choose. However, this could be politically challenging as it could be seen as a way to increase deficit spending.
Congress could repeal the debt ceiling entirely or declare a need to borrowautomaticallyAuthorized every time federal spending is authorized.
In fact, the second option is in the so-calledGerhardt's law, named after former Rep. Richard Gephardt, who got tired of taunting lawmakers for raising the debt ceiling to cover spending they already voted for.
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Last year, before Republicans took control of the House of Representatives, some Democrats called for the debt ceiling to be repealed, butPresident Biden rejects the ideaBecause of "irresponsibility". This sets the stage for the current showdown.
Congress has raised the debt ceiling dozens of times, but rarely has it come close to a crisis.
Exceptions have been made recently during times of divided government -- notably when Republicans control the House of Representatives and Democrats are in the White House, and Republicans use the debt ceiling as leverage to secure policy concessions.
Instead, congressional Democrats have repeatedly agreed to raise the debt ceiling during times of divided government, including twice during the Trump administration and three times during the George W. Bush administration.
FAQs
What is the issue with the debt ceiling? ›
Potential repercussions of reaching the ceiling include a downgrade by credit rating agencies, increased borrowing costs for businesses and homeowners alike, and a dropoff in consumer confidence that could shock the United States' financial market and tip its economy—and the world's—into immediate recession.
Why does the US keep raising the debt ceiling? ›Why does the U.S. keep raising the debt limit? Congress needs to raise the debt ceiling so the U.S. can keep issuing bonds, which investors around the world buy because they're seen as a safe and reliable investment. In turn, the government can fund projects from the military to social programs.
What is the US debt ceiling today? ›Debt ceiling suspended until 2025
Every so often, US Congress must vote to raise or suspend the ceiling, so it can borrow more to pay its bills. Currently it is $31.4tn (£25tn).
The legislation passed the Senate by a vote of 63-36, ensuring the federal government will not run out of money to pay its bills on Monday.
What are the negative impacts of raising debt ceiling? ›According to Moody's, even a short debt limit breach could lead to a decline in real GDP, nearly 2 million lost jobs, and an increase in the unemployment rate to nearly 5 percent from its current level of 3.5 percent.
Who owns most of U.S. debt? ›The Federal Government Has Borrowed Trillions, But Who Owns All that Debt? At the end of 2022, the nation's gross debt had reached nearly $31.4 trillion. Of that amount, about $24.5 trillion, or 78 percent, was debt held by the public — representing cash borrowed from domestic and foreign investors.
Why is the United States in so much debt? ›America's debt has risen massively since the beginning of the 21st century, as "politicians from both parties have made a habit of borrowing money to finance wars, tax cuts, expanded federal spending, care for baby boomers, and emergency measures to help the nation endure two debilitating recessions," writes Jim ...
Why can't the US make more money to get out of debt? ›The Fed tries to influence the supply of money in the economy to promote noninflationary growth. Unless there is an increase in economic activity commensurate with the amount of money that is created, printing money to pay off the debt would make inflation worse.
Is the US the only country with a debt ceiling? ›The U.S. isn't the only country with a debt ceiling. Here's how Denmark avoids the drama.
Who does the US owe money to? ›The public includes foreign investors and foreign governments. These two groups account for 30 percent of the debt. Individual investors and banks represent 15 percent of the debt. The Federal Reserve is holding 12 percent of the treasuries issued.
Where does the US borrow money from? ›
The federal government borrows money from the public by issuing securities—bills, notes, and bonds—through the Treasury. Treasury securities are attractive to investors because they are: Backed by the full faith and credit of the United States government. Offered in a wide range of maturities.
What is the most the US has been in debt? ›Total US federal government debt breached $30 trillion mark for the first time in history in February 2022. As of February 2023, total federal debt was $31.5 trillion; $24.6 trillion held by the public and $6.9 trillion in intragovernmental debt.
How many Democrats voted for the debt ceiling? ›A majority of each party's members — 149 Republicans and 165 Democrats — voted to pass the bill. Seventy-one Republicans and 46 Democrats voted against it. Four members did not vote.
Did the Senate approve the debt ceiling bill? ›With just days to spare before the deadline for the nation to face financial default, the Senate approved compromise, bipartisan legislation to lift the debt ceiling. It cleared the chamber by a bipartisan 63-36 vote.
What happens if the US defaults on its debt? ›U.S. debt, long viewed as ultra-safe
A default could shatter the $24 trillion market for Treasury debt, cause financial markets to freeze up and ignite an international crisis.
Debt Can Lead to Stress and Serious Medical Problems.
The stress from debt can lead to mild to severe health problems including ulcers, migraines, depression, and even heart attacks. 2 The deeper you get into debt, the more likely it is that you will face health complications.
There are at least four separate consequences of rising debt that can adversely affect the current and subsequent performance of an economy. These include transfers, financial distress, bezzle (or fictional wealth), and additional spillover adjustment costs termed hysteresis.
How much is US in debt to China? ›China and Japan are the largest foreign investors in American government debt. Together they own $2 trillion — more than a quarter — of the $7.6 trillion in US Treasury securities held by foreign countries.
Does China have more debt than the US? ›The United States, holding the highest national debt globally, has a total of $31.68 trillion, representing a YoY increase of $1.3 trillion or 4.28%, reaching $30.38 trillion. Therefore, China's national debt has surged almost three times that of the United States in the past 12 months.
Does anyone owe the US money? ›Japan and China have been the largest foreign holders of US debt for the last two decades. Japan and China held almost 50% of all foreign-owned US debt between 2004 and 2006. However, this has declined over time, and as of 2022 they controlled approximately 25% of foreign-owned debt.
Is any country not in debt? ›
The best example can be taken from Hong Kong (it is a one of the debt free countries), whose economy has the least debt to GDP ratio. It is an almost debt free country. It has a well-regulated financial system and large foreign reserves.
Does the US owe most of its debt to itself? ›Many people believe that much of the U.S. 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 right here in the U.S.
How is the US the richest country with so much debt? ›The United States boasts both the world's biggest national debt in terms of dollar amount and its largest economy, which resolves to a debt-to GDP ratio of approximately 128.13%. The United States' government's spending exceeds its income most years, and the US has not had a budget surplus since 2001.
Has the US ever not been in debt? ›As a result, the U.S. actually did become debt free, for the first and only time, at the beginning of 1835 and stayed that way until 1837. It remains the only time that a major country was without debt.
What U.S. states are not in debt? ›The states with the least amount of debt are an interesting mix of states geographically. Mountain states, such as Idaho, Montana, Utah and Wyoming made the top-10 list, as did upper Midwest states like Nebraska, North Dakota and South Dakota. Alaska takes the No. 1 spot, with a tiny debt ratio of only 14.2%.
What city in the US has the most debt? ›| Rank | Metro | Average amount of consumer debt |
|---|---|---|
| 1 | Atlanta, GA | $45,891 |
| 2 | Dallas, TX | $45,541 |
| 3 | Washington, DC | $45,337 |
| 4 | Austin, TX | $44,541 |
Fewer than one quarter of American households live debt-free. Learning ways to tackle debt can help you get a handle on your finances.
Is China in a debt crisis? ›China's debt is nearly 44% of its GDP and its local governments owe nearly $5.14 trillion. With the economic slowdown and collapse of land sales revenue, provinces and local governments in China are facing an embarrassing situation.
Which country has highest debt? ›Japan's debt-to-GDP ratio is the highest in the world due to a prolonged period of economic stagnation and demographic challenges.
How much money does the US owe everyone? ›Nearly all of that debt – about $31.38 trillion – is subject to the statutory debt limit, leaving just $25 million in unused borrowing capacity. For several years, the nation's debt has been bigger than its gross domestic product, which was $26.13 trillion in the fourth quarter of 2022.
How much is the United States worth? ›
The financial position of the United States includes assets of at least $269.6 trillion (1576% of GDP) and debts of $145.8 trillion (852% of GDP) to produce a net worth of at least $123.8 trillion (723% of GDP){{refn|name=position|group=lower-alpha|See section Estimated financial position, Q1 2014 for calculations.
When did the US start borrowing money? ›1776: The Birth of Public Debt
In 1776, a committee of ten founders took charge of what would become the Treasury, and they helped secure funding for the war through "loan certificates" (equivalent to bonds) with which they borrowed money for the fledgling government from France and the Netherlands.
The case of debts arising from World War II is somewhat less complicated. At this time only four countries, discussed below, owe the U.S. government debts of any size arising from World War II programs to aid our allies. Other countries have paid their debts in full.
What country has more debt than the US? ›Japan tops the ranking with central government debt of 221 percent of GDP, followed by Greece, Sudan, Eritrea, and Singapore. Not long ago, the U.S. was among the least indebted countries.
When was the last time the US had a budget surplus? ›In 2022, the U.S. government had a budget deficit of 1.36 trillion U.S. dollars. This is compared to 2000, when the government had a budget surplus of 0.24 trillion U.S. dollars.
How does the debt ceiling affect interest rates? ›Any Breach of the Debt Ceiling Could Increase Interest Payments on the National Debt and Severely Damage the Economy. Short-term fluctuations in interest rates likely will have a negligible impact on the federal government's total borrowing costs.
Who does the US owe debt to? ›The US government owes trillions of dollars in debt to foreign entities, including governments, central banks, companies, and individual investors. This debt includes US Treasury bonds and other securities, which are popular as they are considered safe investments.
How does the debt ceiling affect Social Security benefits? ›As debt ceiling negotiations continue, some officials are warning Social Security checks may be affected. Benefit checks may be delayed, which would cause financial hardship for individuals and families who rely on that money. Still, some policy experts say it is unlikely the standoff would come to that point.
What will happen if America defaults? ›A default could shatter the $24 trillion market for Treasury debt, cause financial markets to freeze up and ignite an international crisis.
Who does the US borrow money from? ›The federal government borrows money from the public by issuing securities—bills, notes, and bonds—through the Treasury. Treasury securities are attractive to investors because they are: Backed by the full faith and credit of the United States government.
When was the last time the debt ceiling was raised? ›
The most recent time that the debt ceiling was raised was in December 2021 when the limit was increased by $2.5 trillion, which made the limit set at $31.381 trillion, which lasted until January 19, 2023, causing the 2023 United States debt-ceiling crisis.