After months in and out of the headlines, the issues surrounding the debt ceiling have come into sharp focus as lawmakers work around the clock to find a resolution. There's nothing like an impending deadline to focus attention.
What is the debt ceiling?
The debt ceiling is the limit Congress places on the amount of money the U.S. can borrow to pay its bills. Since the U.S. has a budget deficit, the government must borrow to make up the difference. Congress has the "power of the purse," so it sets spending limits and must approve any increase.
Why is this an issue?
A debt ceiling negotiation is nothing new. Historically, Congress has suspended or raised the limit to ensure the U.S. avoided default on its debts. But as can happen with a divided government, Washington D.C. is at an impasse. House Republicans passed a bill to raise the debt limit in exchange for certain spending cuts. Democrats, on the other hand, are arguing that any debate about spending cuts should be separate from a vote on raising the debt ceiling.
Both sides are negotiating to get a bill passed before Memorial Day.
What if a deal is not reached?
If the U.S. is unable to pay its bills, it could have economic repercussions. In theory, a default could result in delayed payments of federal benefits. If no deal is reached for some time, it could also disrupt the Treasury market. The ramifications would be challenging, so lawmakers are focused on coming together.
Where do we stand now?
The financial markets have been a bit unsettled as the talks continue. However, President Biden and House Speaker McCarthy have both expressed confidence that a deal will be reached. The President is prepared to return from an overseas trip early to continue negotiations.
We know the markets don't like uncertainty, so getting the debt ceiling issues behind us will be one less thing for markets to worry about. As your financial professional team, we're keeping a close eye on how the negotiations progress, and we will update you if the process takes an unexpected turn.
If you have questions, we're a phone call or email away.
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