The US 31 trillion dollars debt
Borrowing and debt have increased excessively in the United States, after 20 years of tax cuts and recession responses as well as bipartisan spending.
The US debt has reached a record level since World War II compared to the size of the US economy, and is expected to grow at a rate of $1.3 trillion annually over the next decade.
The United States exceeded the legal limit for borrowing of $31.4 trillion last week, which put Washington on the brink of another financial confrontation between the parties.
America’s ballooning debt is the result of choices made by Republicans and Democrats alike.
Since 2000, politicians of both parties have borrowed money to fund wars, tax cuts, federal spending expansions, health care for baby boomers, and emergency measures to help the people survive two debilitating recessions.
Few economists believe that the level of debt represents an economic crisis right now, although some believe that the influence of the federal government has become so widespread that it is displacing private companies, which is a drag on growth.
But Wall Street economists warn that failure to raise the debt limit before the government starts dodging its bills – as early as June – could have catastrophic repercussions.
The US politicians have taken only a few steps to reduce the federal budget deficit resulting from the conflict between the two ruling parties, as it has been nearly a quarter of a century since the last time the government spent less than it received from taxes.
Given that spending programs are now so popular politically, budget experts say it is unrealistic to expect the budget to balance over another decade or more.
The White House estimates that the borrowed money will be needed to cover about a fifth of the $6 trillion federal budget this fiscal year, a budget that includes military spending, provision for national parks, safety net programs and everything else the government provides.
In just two decades, the United States has accumulated $25 trillion in debt, and the reasons for getting into this financial situation are rooted in a political miscalculation at the end of the Cold War.
The biggest drivers of increased debt are federal responses to severe recessionary crises: such as the financial crisis of 2008 and the pandemic recession of 2020.
Soon after Barack Obama took office in 2009, having inherited the recession, he pushed Congress to approve a package of nearly $800 billion in tax cuts and stimulus spending.
Safety net spending continued at high levels for the next several years as the economy slowly recovered.
Trump approved a much larger set of aid packages, totaling more than $3 trillion, after Covid-19 swept the world in 2020, with Biden taking office the following year and signing a $1.9 trillion stimulus plan soon after.
The US debt limit is the maximum total amount of money the federal government is allowed to borrow through US Treasury securities, such as bonds and savings bonds, to meet its financial obligations.
Since the US is running a budget deficit, it has to borrow huge sums of money to pay its bills.
The United States reached the debt technical limit on January 19, as the Treasury Department will now start using extraordinary measures to continue paying government obligations.
These measures are essentially financial accounting tools that limit some government investments to be able to continue paying their bills. These options are exhausted by June.
Once the government exhausts its exceptional measures and runs out of cash, it won’t be able to issue new debts and pay its bills, as the government can end up defaulting on its debts if it is unable to make the required payments to its bond holders.
Such a scenario would be economically devastating and could plunge the world into financial crisis.
There is no official evidence of what Washington could do to prevent this catastrophe from happening, but it has plenty of options.
The Treasury Department could try to prioritize payments, such as paying bondholders first.
If the United States defaults on its debt, the Fed could theoretically step in to buy some treasury bonds.
As for why there is a limit on borrowing, according to the Constitution, borrowing must be authorized by Congress, and the debt limit was established in the early 20th century so that the Treasury Department did not need to ask for permission every time it had to issue debt to pay its bills.
In light of the rise in military spending, federal revenue decreased, and this decline was a direct result of the tax cuts signed by George W Bush in 2001 and 2003, and those tax cuts were temporary, but in 2012, Obama struck a deal with Republicans in Congress to make more From 4 fifths it is permanent.
Now, the repercussions of the financial policies of some US presidents remain even after they leave office.