There was an update in the U.S. on the evolving debt ceiling issue. Here’s what you need to know.
Quickly, remind me what the debt ceiling is?
Debt ceiling = debt limit
The debt ceiling is the maximum amount of money the U.S. government can borrow to fulfill its financial obligations. The intention of the debt ceiling is to keep the federal government fiscally responsible by regulating spending, and to ensure Congress authorises further borrowing. When the debt ceiling is reached, Congress needs to raise it for the country to continue borrowing.
When a politician says they want to ‘lift or raise the debt ceiling’, they want to allow for additional borrowing, resulting in a higher level of allowed debt. When a politician says they want to ‘suspend the debt ceiling’, they are referring to having no limit for a temporary period of time.
What is the latest update?
On Saturday (Australian time) the U.S. Senate reached a short-term deal, where both Democrats and Republicans agreed to temporarily raise the federal government’s $28.4 trillion debt limit by $480 billion, to avoid a potential financial crisis. 11 Republicans joined every Democrat in voting to take up the bill. The bill then has to be approved by the Democrat-majority House of Representatives, which it is expected to do, and is then sent to President Joe Biden to be signed into law. The deal means the U.S. won’t run out of money… until early December.
This comes after the two parties were at odds over the last week on whether the debt ceiling should be lifted. Democrats wanted to raise the debt ceiling, and the Republicans believed it was up to the Democrats to reorganise their finances.
What is next?
Prior to this deal, the Treasury Department estimated the government would no longer be able to pay its bills by October 18. While it has averted that deadline for now, Congress will have to revisit the issue again in December in order to avoid a potential default on its loans. We don’t have a firm date in December as to when the cash is set to run out – but it’s thought to be in the first week of the month. A set date can only be determined by calculating tax revenues and expenditures, however, such figures have been made difficult to predict due to the pandemic relief programs.