All you need to know about the US debt ceiling

All you need to know about the US debt ceiling

You will notice that the United States of America, the most important and dominant economy in the world, is slowly but surely moving towards its debt ceiling. If the latest estimates are correct, America could reach this ceiling in the first weeks of June.

Technically, the cap was tapped even in January 2023. From that moment on, the country had to make do with its cash reserves.

Nothing new under the sun

Reaching the debt ceiling is nothing new for the United States of America. The roof has been raised 78 times since 1960. In this regard, not everything is as exciting as it seems. For Republicans, it is primarily a means of putting pressure on the Democratic administration of President Joe Biden.

And they demand that the government undertake to reduce its spending before they agree in Congress to raise the debt ceiling. Joe Biden (of course) believes that the debt ceiling should be raised without demands and conditions.

The fact that the mountain of debt is a growing problem for the United States is particularly evident from the rising interest payments. Historically, these interest payments have cost America about 50 percent of its annual defense spending.

However, interest costs have now soared that America is spending as much on interest as on defense. In other words, a mountain of debt annually costs as much as the entire US military.

But today is different…

Despite the fact that the debt ceiling has been raised dozens of times over the years, things seem to be going a little differently this year. Normally, politicians have managed to get agreement to raise the debt ceiling more quickly. Everyone says the agreement will be reached in time, but it will happen in the end.

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According to Visual Capitalist It is the growing political polarization in the United States that primarily contributes to the fact that negotiations have been going on for so long. However, it is impossible to imagine that America is actually ‘busty’ Because she can no longer pay her debts.

True, it becomes increasingly costly if politicians take longer to reach an agreement. In 2011, for example, an agreement was reached before the deadline. As a result, Standard & Poor’s downgraded the US government’s credit rating from AAA to AA+.

This change added $1.3 billion in additional borrowing costs. This is not a huge amount for America, but for these amounts you can still achieve very nice things. In this regard, we can probably expect a lot of fireworks on this topic in the coming weeks.

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