8 mins read . 09 May 2023
There is a very important and interesting meeting coming up in the US on 09th May. The two major ruling parties in the US, the Democrats, and the Republicans, will debate about increasing the debt ceiling. Debt ceiling is a term we have heard quite often in the last few years. There have been dire predictions that the debt ceiling may not be raised. That means; US government will not be able to borrow and pay its bills on time. Fortunately, nothing of that kind has happened, but this debate on May 09th is a lot more significant. The real issue in the debate is not the size of the debt or increasing the debt ceiling. It is about linking an enhancement in the debt ceiling to spending cuts. The ruling Democrats want unconditional raising of debt ceiling while the Republicans want any debate on debt ceiling to be accompanied with spending cuts. Joe Biden has made it his own personal battle.
Debt ceiling was introduced during World War I and came into its current form during World War II. In the past, the Treasury had to seek approval for each borrowing. Since that was not feasible during the war, the government devised a debt ceiling as the limit up to which the US government can borrow. Currently, the debt ceiling limit stands at $31.38 and this ceiling had been breached in January 2023. Over the last 4 months, the US government was meeting its commitments through cuts in investments. However, that is unlikely to last beyond June 2023. That is why the approval has to be sought in May itself. Remember, that the US economy has an annual GDP of nearly $25 trillion so the debt obligation of $31 trillion is not too alarming. The debt ceiling caps what the Federal government can borrow through short term and long term treasuries.
One argument against raising the debt ceiling is that it could lead to rampant spending. However, that is not entirely true. Raising of debt ceiling is not the same as authorising fresh spending. That is something the US Congress must still authorize. In fact, what the debt ceiling does authorise is to spend money on programs that are already approved. Also, there have been multiple occasions in the past when the Federal government had to raise the debt ceiling. Despite heated debates, the debt ceiling enhancement has normally gone through. In the last 20 years the US government spent heavily on wars in Afghanistan and Iraq as well as on COVID measures. All these factors led to a spurt in the debt levels.
When the US Congress meets on 09th May to decide on the enhancement of the debt ceiling, there are several possibilities.
In the past, debt ceiling hikes have got approved easily. The difference, this time around is that both parties are sticking to their knitting. Eventually, the ceiling hike should get through, without too many hassles.
Content Source: CNBC.COM