Susan Potter
economics: Created / Updated

The Debt Ceiling Crisis 2023

After an on-again, off-again, on-again Biden-McCarthy negotiation over the debt ceiling, we are back to off-again.

The looming debt ceiling crisis poses an economic problem of enormous proportions. McCarthy and Biden must eventually compromise because neither wants to appear unfavorable. The question is whether McCarthy can pass a compromise in the House in time given his slim majority and beligerent party members. It means neither Biden nor McCarthy knows if he can pass a compromise bill and if he can get his party together whether progressives on the Democrat side will allow the vote to go through. So, Biden may resort to the "nuclear option".

By "nuclear option," I don't mean weapons, but rather invoking the 14th amendment to authorize new bond offerings without Congress passing a raise of the debt ceiling option. However, this decision rests with the courts, and the outcome is uncertain at best. Uncertainty is not a great thing for markets.

So, what happens if the debt ceiling isn't raised?

No one knows for sure, but here are some possible scenarios:

  • Stock and bond markets decline sharply.
  • Credit rating downgrades occur again, leading to higher interest rates for taxpayers.
  • Economic growth decreases as markets decline and large investments shift away from USD and US markets.
  • Confidence in the US dollar diminishes.
  • A potential deep recession looms.

The debt ceiling is a self-imposed limit on US government borrowing, established in 1917 in theory to curb overspending. However, it seems like one more way Congress could insert themselves into a government function to make themselves feel important and increasingly has become a political tool more recently, with Republicans using it to attempt negotiate concessions for bills passed by prior Congresses in the 1990s, 2011 and now (2023).

If you are an American veteran, medicare, or social security benefits recipient, do you know how you will be paying your bills starting in June? What about July and August? Because these are the payments on the line. Ok, maybe you don't receive any of these benefits, does that mean you will be let off the hook? Very unlikely. Failing to raise the debt ceiling when it is needed to pay off the national debt will likely lead to massive economic turmoil impacting certainly the prospects of everyone inside the US for decades to come. The repercussions will bleed out to our neighbors (geographically and politically), possibly beyond.

If you have a Republican representative, you need to call their office on Monday morning if the negotiations are still stalled and urge them to cease using debt issuance as leverage to renegotiate bills already passed by prior Congresses. You can use this handy tool. They need to hear from you that you know what they are doing to you.

If you enjoyed this content, please consider sharing via social media, following my accounts, or subscribing to the RSS feed.