During the entire month of July, the Republicans and Democrats eyed the decision of Congress on whether Congress is going to suspend the debt ceiling or raise it again. And finally, the Congressional budget office has announced its decision and has decided to extend the suspension period for two months.
It means that the Biden administration has received temporary relief, but the issue remains unsolved. During these two months, the CBO has to make its final decision regarding the debt ceiling.
The Democrats have to address the issue and find a long-term solution to it.
If action isn’t taken this time, the government won’t be able to pay its bills and legal obligations after a few months.
What Exactly is the Debt Ceiling?
According to the Congressional Research Service, the amount of money a government can borrow over the years is decided by the Congressional Budget Office (CBO); this is called the debt ceiling or debt limit.
Once the limit is reached, legislators need to either suspend or raise the ceiling before the Treasury Department issues more debt.
Before 1920, Congress used to approve the borrowing of money for specific reasons in very small amounts. But over the years, it became more accessible for the Treasury Department to issue bonds for debt without individual explicit legislation.
But in 1939, Congress established a law to raise or suspend the amount of debt, limiting the ability of the Treasury Department to borrow money.
According to this report, until the Biden administration came into power, the limit has been raised or suspended about 98 times.
Why Has the Debt Ceiling Became an Issue Out of the Blue
Last time, in August 2019, the Trump administration, through a bipartisan enactment, suspended the debt limit through July 31, 2021.
And from August 1, 2021, the debt limit was supposed to be reset to the previous ceiling of $22.0 trillion, plus the cumulative borrowing that occurred during the period of suspension, if the legislation didn’t extend, suspend, or increase the limit.
But on August 3, the decision came forth as an extension of the suspension period for another two months by the White House.
The debt ceiling earlier was $22 trillion. But by the end of July, the debt ceiling had reached $28.5 trillion, with an addition of $6.5 trillion, which was borrowed by the government over only a four-year period.
According to Bloomberg, the GDP of the United States has reached $21.5 trillion with a growth of 6.4%.
And with an overall debt of $28.5 trillion, the United States of America has become one of the largest debtor nations in the world, which is going to be a real problem for the country and economy unless a sustainable solution is found.
United States Treasury Secretary Janet Yellen recently released a statement regarding the debt ceiling. She said that the Treasury Department would use “extraordinary measures” to avoid default in the coming months.
But the Congressional Budget Officeagain said that so-called extraordinary measures will be exhausted very soon and won’t help them in this regard because the timing and size of revenue collection and spending in the coming months will differ from what the federal government has projected.
Moreover, the bipartisan policy center has also warned that due to the COVID-19 pandemic and different relief programs within two months of the suspension of the debt ceiling, the government won’t have enough money to meet its obligations.
Senate Minority Leader Mitch McConnell told Punchbowl News that GOP wouldn’t be amenable to help the Democrats to raise or suspend the debt ceiling, and Democrats won’t be able to get a single vote from any Republican Senator for raising the debt limit.
He referred to free-for-all taxes and spending favored by Biden, who is planning a $3.5 trillion human infrastructure bill through budget reconciliation.
Once again, it has become a political tussle, seeing the reaction of both parties.
Senate Majority Leader Chuck Schumer said that Republicans’ reaction would drastically impact the economy, and we can’t let anyone take the economy hostage.
He further said that this isn’t the first time, and even in the period of ex-president Donald Trump, the debt ceiling was suspended or raised several times. And during his tenure only, the national debt jumped from $19 trillion to $27 trillion.
According to critics, the debt ceiling should be dealt with separately with a clean extension. Moreover, if the government adds raising the debt limit in the reconciliation bill, the Republicans unanimously have signaled to boycott their support.
Recently in his speech, Senate Majority Leader Charles E. Schumer said that the GOP shouldn’t play political games with full faith and credit for the United States. Instead, both parties should support the raising of the debt ceiling as it has been done before on several occasions in the period of ex-president Donald Trump.
Being a majority party, Democrats must decide from the two options of whether to face partisan attacks or continue the controversial negotiations with Republicans over spending decisions.
Two times during Trump’s period, debt limit suspensions were attached to legislation increasing the spending caps, with a rough parity between the defense and non-defense increment.
Currently, both sides are at a deadlock over appropriations bills because the White House and Democrats are seeking to push through a modest, less than 2% hike in defense accounts, with a 17% increment in domestic and foreign aid programs.
The Treasury Department has clearly said to Congress to suspend or raise the debt limit because it is unthinkable for the United States to default on its debts.
If the Congressional Budget Office doesn’t increase the debt ceiling, it will have catastrophic consequences on the economy of the country.
Therefore, it seems that again CBO will have to choose from two options, whether to extend the suspension period or increase the debt ceiling. Now, it is a matter of time what the CBO would do regarding the debt ceiling in the upcoming months.