The United States will reach a congressionally mandated debt ceiling on Thursday, forcing the Treasury Department to use financial strategies to continue paying its debts.
Republicans and Democrats have simultaneously boosted government spending and slashed taxes for decades, reaching a milestone when the US debt limit of $31.4 trillion is reached.
Republicans who have just gained control of the House have sworn not to raise it once more unless President Biden consents to significant cutbacks in government expenditure, per The New York Times.
Biden has indicated he would not bargain terms for a US debt limit hike, saying that legislators should raise the threshold without restrictions to cover expenditure approved by prior Congresses.
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On Thursday, the Treasury Department used "extraordinary measures" to maintain the government's operations. These steps halted contributions and investment repayments for government employees' retirement and health care accounts until June, allowing the government enough money to cover its daily obligations, reports AP News.
Economic Consequences Unclear
It is unclear what will occur if these options are exhausted without an agreement to increase the US debt limit. A lengthy default might disrupt markets and cause panic-driven layoffs if trust in the US Treasury note collapsed.
Economists estimate debt as a proportion of GDP, the broadest indicator of the US economy. According to official statistics, the debt is around 120% of GDP after expenditures for the pandemic recovery. It's far greater than the rate seen after World War II, but whether or not that poses a problem is heavily debated, according to CNN.
Bank of America analysts warned Friday that there is a "high degree of uncertainty" regarding the pace and size of the impact the US economy would potentially face once the US debt limit is hit.
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