Ep 22: Debt Ceiling

The U.S. debt ceiling is all over the news today, so let’s talk about it.

Before 1917, Congress had the ability to use the Power of the Purse at their own discretion. In effort to make the federal government fiscally responsible, the debt ceiling was created.

The debt ceiling cap currently stands at roughly $31.4tn. That limit was breached back in January.

Is a U.S. default likely?

Since 1960, Congress has acted 78 separate times to permanently raise, temporarily extend, or revise the definition of the debt limit – 49 times under Republican presidents and 29 times under Democratic presidents.

House Speaker McCarthy is in a tight spot… Failing to raise the debt limit in the next three weeks could be catastrophic for the U.S. economy, but neglecting to secure the desired spending cuts could cost him the gavel.

Moody’s Analytics predicts that a default would shave around 4% from U.S. gross domestic product (GDP), see stock prices fall by a third, and result in companies slashing nearly six million jobs.

As Ulysses Everett McGill from the movie Oh Brother Where Art Thou? would say “we’re in a tight spot.”

Sources used for this episode:

https://www.investopedia.com/terms/d/debt-ceiling.asp

https://home.treasury.gov/policy-issues/financial-markets-financial-institutions-and-fiscal-service/debt-limit

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