What The Debt Ceiling Could Mean For Us?

       The United States has long been known for its great credibility and has benefited from the lower interest rates of borrowing because of its World’s Reserve Currency, the U.S. Dollar. All those good things would be considered a glorious past since the new debt policies come into action. Because of the oppression of the debt ceiling, the U.S. government is now facing the point of default this winter for the first time in American history. 

       The debt ceiling is “the total amount of money that the United States government is authorized to borrow to meet its existing legal obligations, including Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and other payments.” (U.S. Department of Treasury). The debit system works similar to credit cards – paying the previous month’s bill at the beginning of each cycle, and the U.S. government borrowed money to pay the debts from committing other policies. With the limit on the maximum amount of money it could borrow, the U.S. government is facing the crisis of being unable to pay back the debts.

       As reported in an article published in BBC on October 15th, “Treasury Secretary Janet Yellen had warned Congress that the country would reach its ceiling by October 18th”. Since 2021, the United States government has kept raising the debt ceiling when facing a crisis. When the government needs more money to sustain its current programs, it has three effective solutions: borrowing money from others, increasing taxation, or ultimately cutting the government expenditure. If the amount of borrowing becomes limited, but the government still needs more funding, the more practical solution will be increased taxation. If there is still an imbalance between the spending and the revenue, the government has to cut the spending, resulting in standing on the edge of a fiscal cliff. 

       Considering those social welfare bills –the Child Credit Act, Medicare & Medicaid, and even the Social Security–, where does the funding come from to support those programs? The government. What will happen if the government is unable to pay the money for fulfilling it? Will those programs stop, and how will those groups of people respond to the change? What indeed will happen if the debt ceiling remains unraised. In the recent prediction, “Yellen[Treasury Secretary] explained that if the U.S. couldn’t make payments, it already committed to, nearly 50 million seniors wouldn’t get the Social Security payments they expect in November” (Lisa Rowan). If one of the oldest social programs is endangered, what about those relatively young programs targeting COVID recovery? 

       The indices of the stock market illustrate the microeconomic level of impact. At the end of September, when the news of possible default came out, the stock market experienced a significant drop and reached the minimum on September 30th (see the graphs of SP 500 and Dow Jones). The decline is so significant that “The S&P 500 index finished the week down 2.2%, at 4357.04—notching its worst September since 2011, which occurred during another debt-ceiling standoff” (Nicolas Jasinski). Based on the Interview of students from the Microeconomics class, most of their portfolios display an evident decrease at the end of September, consistent with the overall trend. Katarina Chen ’23 also provided her portfolio in the stock market simulator from her microeconomics class, showing the gradual recovery since the drop on September 30th.

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       Fortunately, that’s not the end of the story: “Congress and President Biden this week lifted the debt ceiling until December, temporarily averting a government default on the nation’s debt.”(Stephen B.Kaplan) This act of extension will probably mitigate this year’s debt, but further resolutions are needed in the long term. If continuing to raise the debt ceiling is impossible, the U.S. government must find a new approach to cover up the annual deficit and balance it with domestic social welfare programs.