First, Jansen explained the term “debt ceiling,” as well as the roles of both the U.S. Treasury and Congress. “[Hitting the debt ceiling] means that the Treasury has issued $31.4 trillion worth of debt and that [it] hit its legal authority. So, Congress has passed these debt limits in order to, basically, give the Treasury room to borrow, but there’s a limit, and when you reach that limit, the Treasury can’t borrow any more unless Congress increases the limit.”
Hitting the debt ceiling, although concerning, is not a new phenomenon, but rather the consequences of overspending. “Congress has been passing budgets that are not balanced and we’ve been borrowing large amounts of money on an on-going basis for decades. Currently, our debt-to-GDP ratio is close to 100% and the Congressional Budget Office thinks that it will be 125% in the next decade, in the 2030s, and it will be 150% in the 2040s.” Jansen shared, “So, we’re continually needing to borrow more, because… as debt goes up, we have to have borrowing to cover that and Congress passes these limits and we’ve reached them.”
Using “extraordinary measures,” such as diverting contributions to federal and miliary retirement programs have delayed the issue until July, although action will then have to be taken. “Now, if we actually hit the debt ceiling and we literally ran out of extraordinary measures that we could use to avoid overspending, then Congress would have to make choices – we spend on interest on the debt, we spend on defense, we spend huge amounts on Medicare and Social Security and other entitlement programs and if we can’t borrow, then we have to cut spending somewhere else and Congress would have to decide where that “somewhere else” is,” said Jansen.
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