According to the estimates from the Congressional Budget Office (CBO), the debt ceiling could be breached between July and September this year if the congress doesn’t vote to increase the debt ceiling. We haven’t seen this movie before. Let us ask ChatGPT what will happen if the debt ceiling is actually breached.
Q: What happens if the US debt ceiling is breached?
A: The US debt ceiling is a legal limit on the amount of debt that the US government can issue to pay for its obligations. If the debt ceiling is breached, it means that the government cannot issue any more debt to cover its expenses. This can lead to a number of serious consequences for the US economy and financial system.
If the debt ceiling is breached, the US government may not be able to pay its bills, including payments for Social Security, Medicare, and other entitlement programs. It may also be unable to pay interest on its existing debt or redeem its bonds as they come due. This could lead to a default on US government debt, which would have serious implications for the US financial system and the global economy.
A default on US government debt would likely cause a significant increase in interest rates, as investors demand higher returns to compensate for the increased risk of holding US debt. This could lead to a sharp drop in the value of the US dollar and a rise in inflation. It could also cause a loss of confidence in the US government's ability to manage its finances, which could lead to a broader economic crisis.
To avoid breaching the debt ceiling, the US government has a few options, such as cutting spending, increasing taxes, or raising the debt ceiling. In the past, the debt ceiling has been raised through bipartisan agreements in Congress, but there have also been instances of political brinkmanship and gridlock that have resulted in near misses on the debt ceiling. The consequences of breaching the debt ceiling could be severe, so it is important for the US government to take action to address the issue before it becomes a crisis.
Q: Has the debt ceiling ever been breached before?
A: The United States has never technically defaulted on its debt, but there have been instances when the debt ceiling has been breached in the past, causing disruptions in financial markets and leading to uncertainty about the government's ability to meet its financial obligations.
The most recent instance of the debt ceiling being breached occurred in August 2011, when the government came within days of exceeding the debt limit. This led to a downgrade of the US government's credit rating by Standard & Poor's, a major credit rating agency. The potential for a default on US government debt led to increased volatility in financial markets, as investors worried about the consequences of a default. The crisis was ultimately resolved when Congress passed the Budget Control Act of 2011, which included provisions to raise the debt ceiling and implement spending cuts.
There have been several other instances in the past when the government has come close to breaching the debt ceiling, including in 2013 and 2015. In each case, Congress eventually raised the debt ceiling to avoid defaulting on US government debt.
The debt ceiling is a recurring issue in US politics, and debates over the debt ceiling and government spending can be contentious and divisive. However, defaulting on US government debt would have serious consequences for the US economy and financial system, and it is generally seen as a scenario to be avoided at all costs.
In the short-term, the US debt ceiling needs to be raised but this cannot continue forever. Look at the UK. GBP gradually lost its reserve currency status in the past century and the UK central bank is now very limited on what they can do because if they keep issuing new debt like crazy, GBP will devalue and they can descend into a third world country. America should think about our future generations and stop spending the money we don’t have so fast. The deficit spending we currently have is not sustainable in the long run.