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America Hits Debt Ceiling, Fears Rise

The United States officially hit the $31.4 trillion debt limit on Thursday, January 19. Now, the Treasury Department must tread carefully as they wait for Congress to decide what will happen next. 

Reaching the debt limit doesn’t just mean that the U.S. lacks funding for new programs but that they have to be careful when funding current ones like Medicare and paying government workers’ salaries.

Treasury officials have assured citizens that they’ve taken the necessary steps to ensure these payments can continue to be made until at least June 5.

After that, it’s unclear when the nation will run out of cash, as it will depend on incoming revenue, tax receipts, and the overall economy’s performance.

America Hits Debt Ceiling

While six months may seem like plenty of time to develop a more permanent solution, Congress isn’t prone to acting swiftly on such matters, especially when the situation can be used as leverage.

Raising the debt limit isn’t like calling your credit card for a personal credit increase; it’s a decision wrapped in political strife.

A Divided Decision

In reality, both parties are to blame for the decisions that led to reaching the debt cap: When in control of the White House, Republicans passed several tax cuts, and Democrats have repeatedly expanded spending programs that tax increases haven’t offset.

Both sides also voted to pass major economic aid packages during the financial crisis of 2008 and the pandemic recession. 

Nevertheless, each party sees reaching the debt limit differently. Republicans have been quick to use the request for a debt cap increase to attempt to push for “fiscal reforms.”

They believe that current spending is an economic threat that must be stopped. In particular, newly elected Republicans view the situation as an opportunity to get recompense for past failures to exact concessions for raising the limit.

Therefore, House Republicans have firmly stated that they will not approve a debt cap increase unless President Biden makes major cuts to federal spending. 

Meanwhile, President Biden has said that he will not use the debt limit as a way to negotiate other policies.

He argues that it’s Congress’s duty to approve a debt limit increase without attaching stipulations, considering it was Congress that approved the spending that led to the debt cap being reached in the first place.

Democrats are largely in agreement with the President. Yet, sources say they may be preparing ways to reduce spending should it become necessary. 

This isn’t the first time that Congress has used debt caps as a way to make decisions. In 2011, the nation nearly defaulted on its debt before President Obama approved caps on spending increases in exchange for lifting the debt limit. 

The Debt Cap and its Effect on the Economy

Currently, the economy is expected to grow in 2023, but reaching the debt cap is likely to put a damper on such results. The longer the decision is drawn out, the more risk there will be.

If a decision isn’t made until June, experts estimate that the nation’s economic output could decrease by 5 percent and the country may face a deep recession.

Senator Mitch McConnell, the Republican leader, has stated that there’s no need to “be concerned with a financial crisis,” believing that a consensus will be reached.

But if what happened in 2011 is any predictor, there’s bound to be unease amongst investors and borrowers as long as the standoff continues.

This could inevitably increase the costs of goods and real estate, two areas that have already seen numerous ups and downs in the last few years.


Jessica is a published author and copywriter specializing in personal and investment finance. Her expertise is in financial product reviews and stock market education.