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What is it, what is it for, and what will happen if it is not removed (or increased).

When we look at the economy United State We find it difficult to think that a first world power could have it shortening. Rather, it is technically feasible especially when there is a political canon in the middle establishing a US debt ceiling.

A law that must revise this ceiling upwards every year so as not to risk bankrupting the US economy with disastrous consequences for the global economy. Let’s see how it works and the possible results.

The US debt ceiling: what is it?

the debt ceiling Accurately indicates the maximum that the US debt can go so as not to specify a shortening from the US economy. The cap is determined politically by law in Congress. Also this year, the Senate and Assembly were asked to raise this threshold to avoid default. The last time was in 2021 when the cap was raised to $31.4 trillion. The Chamber had already agreed on April 27, the Senate yet to do so, but the motion ran aground. The deadline is June 1. If the US debt ceiling is not raised by that date, the US economy will collapse shortening.

It won’t be easy given that the Senate has a Republican majority, a party hostile to the Biden administration. Last week, Republicans in the House of Representatives voted on a bill that would allow a $1.5 trillion cap to be raised but only in exchange for $4.5 trillion in spending cuts over 10 years. A proposal to cut expenses that would affect some of the core points of the Biden program, such as welfare, clean energy, and tax hikes for the wealthy.

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What are the consequences if it is not increased or removed

If by June 1 US debt ceiling It will not be increased or removed, and the consequences will be very dire for the American economy first of all, but also for the global economy. The primary consequence of the failure of the American economy will be the inability of the administration to meet the salaries and debts of its employees. But it is clear that such a situation will severely damage the entire global economy. Those who own US debt securities will end up wasting the papers since it is impossible for the US to pay them back.

The US Treasury Secretary also opened up to this scenario Janet Yellen During a press conference in Niigata, Japan, where the meeting of finance ministers and central bank governors of the Group of Seven will take place.

“A default in the United States would threaten the gains we have worked so hard for over the past few years to recover from the pandemic and trigger a global recession that would set us back. A situation that could also threaten to undermine the global economic leadership of the United States and raise questions about the ability to defend its interests Our national security.” – her words.

To avoid all this, in the past few days the hypothesis that Biden is resorting to Fourteenth Amendment. Created in 1868, the amendment provides that the validity of the public debt of the United States, permitted by law, cannot be questioned.” We’ll see if Biden decides to adopt it to get out of the woods.

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Earl Warner

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