executive summary
Until January 1, 2025, the Financial Liability Law stopped the debt limit, which is the legal limit of debt accumulated by the federal government. On January 2, debt restrictions were recovered at $ 36.104 trillion, which is an unpaid debt, and the Ministry of Finance, usually, as an extraordinary measure for the federal government to temporarily maintain default. Start using the known accounting operation. Debt; however, the debt that has not been paid by the debt amount until January 21, when the debt restrictions were violated due to the redemption of non -commercial securities in the Federal Trust Fund related to the payment of med care. The amount was suppressed. During the recovery of debt limit and extraordinary fatigue, the parliament must pass the law to raise or stop debt restrictions to avoid the default. This insight offers a simple review of what the debt maximum is, what happens, what happens, and the negative consequences of the debt maximum.
introduction
According to the latest forecasts from the Congress Budget Bureau, the United States will operate a federal budget deficit (FY) in FY2025 (FY) following the 1.8 trillion dollar deficit in FY2024 and the 1.7 trillion dollar in FY2023. 。 In addition to the deficit, the Ministry of Finance will regularly pay debts to borrow new expenditures or tax reductions. Its debt is subject to legal restrictions, also called debt restrictions or debt limit. Congress sometimes raises or stops debt restrictions in order to respond to additional borrowing to supply funds to the budget of the country’s growth.
The Financial Liability Law (FRA) stopped the debt limit until January 1, 2025. On January 2, debt restrictions revived at an unpaid debt of $ 36.104 trillion. When this deadline is reached, the Ministry of Finance usually starts using accounting operations as extraordinary measures to temporarily protect the default of debt. However, until January 21, when debt restrictions violated due to the redemption of non -available securities in the Federal Trust Fund related to med care payments, the amount of debts has not been paid by the debt. It was suppressed. In violation of the maximum debt, a policy device enacted a law that raises or pauses debt restrictions to avoid defaults during exceptional exhaustion (known as “X-Date”). You need to.
Rising or pause of debt restrictions is not generally popular, and both parties’ policies often make it difficult after extended negotiations. These negotiations are characterized by excessive brinks in which the Ministry of Finance is at risk of paying national bills. Policy implementers generally waited up to 11 hours to act on the debt limit, but this is no exception.
How much is the debt restriction?
Debt maximum is also known as debt restrictions, but is a legal restriction of debt amounts that the federal government can accumulate. It was first established in 1917 and set to $ 11.5 billion as part of the second free bond law. All new debt issues are approved by another law. The Ministry of Finance can borrow as long as the total borrowing is exposed to debt restrictions. In 1939, Congress covers almost all government debt and established the first total debt limit to $ 45 billion. Debt maximum is limited to federal government’s borrowing capabilities, so the ability to pay the obligations that have already occurred are restricted. It is noteworthy that debt restrictions do not directly affect the federal government that runs a budget deficit or restrict future obligations.
The federal debt to be restricted applies to almost all federal debt, except for the relatively small trunkers of specific minimum issues and other obligations. In other words, as a result of social security, social security, and borrowing from various government accounts, the federal government covers almost all of the $ 7.4 trillion debt known as debt. Mediceatrast fund. As a result, the national debt continues to increase due to both the borrowing from the people and the annual budget deficit, which is funded from the surplus of the Federal Trust Fund.
The FRA stopped the debt limit until January 1, 2025. On January 2, debt restrictions revived at an unpaid debt of $ 36.104 trillion. When this deadline is reached, the Ministry of Finance usually starts using accounting operations as extraordinary measures to temporarily protect the default of debt. However, until January 21, when debt restrictions violated due to the redemption of non -available securities in the Federal Trust Fund related to med care payments, the amount of debts has not been paid by the debt. It was suppressed.
What is an extraordinary measure?
Now that debt restrictions have been infringed, the Ministry of Finance has begun to rely on a series of accounting operations known as extraordinary measures to avoid default of federal government’s financial obligations. Such measures include the declaration by the Finance Secretary of the Finance Secretary of the Fund of the Public Service Retirement Disorders and the retired health benefit at the post office. Faster than the schedule. In the past, the Finance Secretary also stopped reinvesting in the Government Securities Investment Fund, stopped the daily reinvestment of the exchange stabilization fund, and stopped issuing the State and Local Government’s Ministry of Finance savings. Only extraordinary measures may delay the restrictions imposed by debt restrictions to a maximum of several months. For example, in the deadline of the debt limit of 2023, an extraordinary measure has fulfilled the federal obligations on June 3, 2023 until the FRA stops debt restrictions (debt restrictions). It was infringed on January 19, 2023, and the federal government was allowed to pay the duty on time for 135 days.
What happens when the debt maximum is hit?
After the federal government reached the limit of debt and used extraordinary measures that could be used, the Ministry of Finance would no longer be able to issue new debt, and will shortly shorten cash. Considering the large -scale deficit of the annual budget, the enrollment of revenue is not enough to cover the federal government’s daily financial obligations. As a result, financial and other federal payment processes must be guaranteed to be paid by bond holders, and in order to avoid federal securities defaults, it is necessary to essentially reduce the payment of the federal government to the inflow of cash. This so -called “priority ranking” must postpone timely payments for other financial obligations, such as social security payments, federal and military salaries, and veterans.
What are the results of a deadline for the debt limit?
The need to raise or pause in debt is generally used as indispensable to avoid default of the national debt. The United States has never defined debt, but policy proprieters usually waited for 11 hours to act on the debt limit. The 2013 financial research is most often summarized the macro economic meaning on the brink of debt restrictions.
The United States has never defaulted to that obligation, and US dollars and the Ministry of Finance securities are at the center of the International Financial System. The default is unprecedented and may be catastrophic. Credit markets can freeze, the value of the dollar rapidly increases, US interest rates can increase rapidly, negative spreads may be echoing around the world, and financial crisis and recession may occur. there is. It can reflect the events after 2008. A political brink, which causes the default prospects, may destroy financial markets, American companies and families. (1)
Often, the brink surrounding the collapse of the debt limit may lead to US credit downgrades by rating agencies. Two of the three major credit ratings, Standard and Poor’s and Fitch, have reduced US credit ratings and directly quoted political Gridlock, which surrounds debt limit. In November 2023, Moodies, the third major credit rating organization, also reduced US credit rating.
The weakness of the debt limit has also adversely affect the world’s views on the United States as a reliable partner and investor’s perception of the Ministry of Finance as a safe and stable investment. For example, if US debt is considered dangerous, investors can choose to divert resources to other markets. As a result, the interest rate of the Ministry of Finance securities is applied upwards. The interest rate of the whole economy will soon increase, affecting mortgages, car loans, credit cards, corporate investments, and other investment costs on the US economy. And ultimately, the interest cost of national debt rises.
Conclusion
The reinstatement of the debt limit on January 1, 2025 and the debt restriction on January 21 are the first of several financial deadlines facing policy proprietors in 2025. For a few months, defaults, policy creators need to work quickly to raise or stop debt before the X-Date. The fact that you did not act on the debt limit would have a serious negative result to the US economy and the country’s global status.
(1) https://www.treasury.gov/initiativeVes/documents/potential %20macroeconomic %20IMPACT %20OF %20CEILING20CEILING20CEILING20CEILING20CEILING20CEIPDF.pdf.
