Is the US. likely to default on its debt why
The US Congress has once again raised the nation's debt ceiling, avoiding a potentially disastrous default that could have sent global markets into a tailspin. The debt ceiling is a law that limits the total amount of money the US government can borrow to pay its bills. This includes paying for federal employees, the military, Social Security, Medicare, interest on the national debt, and tax refunds. The cap currently stands at roughly $31.4tn, and it was breached in January, prompting the Treasury Department to use "extraordinary measures" to provide the government with more cash while it figured out what to do.
Historically, it has been a formality for Congress to raise the limit as needed. But in recent years, as the parties have become more polarized, they have frequently failed to agree on the terms. Treasury Secretary Janet Yellen warned that without more borrowing, the US would not have enough money to meet all of its financial obligations as soon as June 5.
If the US were to default on its debt, it would cause major economic damage. The government would no longer be able to pay the salaries of federal and military employees, while Social Security payments, which millions of pensioners in the US rely on, would stop. Companies and charities that count on government funds would be in peril. If the government stops making interest payments on its debt, that would also put the country into default.
A US debt default could unleash global chaos. The financial system trades more than $500bn in US debt every day. Moody's Analytics predicts that in a prolonged stand-off, stock prices would fall by almost a fifth and the economy would contract more than 4%, leading to the loss of more than seven million jobs. Over the long term, if investors start to see US debt as risky, they will charge the US more to borrow money. And since government borrowing helps determine interest rates more widely, the impact would trickle out to the rest of the economy, making borrowing money for a home or a car more expensive for everyone.
While the US has avoided default this time, the debt ceiling remains a contentious issue in US politics. The country's debt of $24tn is a cause for concern, and investors, executives, and economists are all preparing contingency plans for the potential fallout if a default were to occur. It is essential for the US government to find a way to manage its finances and avoid a debt default to ensure stability in the global economy.
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