{"id":11373,"date":"2021-09-28T10:34:46","date_gmt":"2021-09-28T15:34:46","guid":{"rendered":"http:\/\/blog.uwsp.edu\/cps\/?p=11373"},"modified":"2021-09-28T10:35:11","modified_gmt":"2021-09-28T15:35:11","slug":"would-the-u-s-default-on-its-debt","status":"publish","type":"post","link":"https:\/\/blog.uwsp.edu\/cps\/2021\/09\/28\/would-the-u-s-default-on-its-debt\/","title":{"rendered":"Would the U.S. Default on its Debt?"},"content":{"rendered":"\n
\"Would<\/figure>\n\n\n\n

Recent\npolitical discussions have included the possibility of the U.S. defaulting on\nits debt. That would be irresponsible, costly, and foolish.<\/p>\n\n\n\n

A quick review of why the\ndiscussion on the debt limit, commonly called the debt ceiling, is currently\ntaking place. The debt limit is the maximum amount of debt that the Department\nof the Treasury can issue to the public or to other federal agencies. The amount\nis set by law and historically has been periodically increased to allow\nthe financing of government operations. According to the Congressional Budget\nOffice, the Bipartisan Budget Act of 2019 (enacted in August 2019)\nsuspended the limit through July 31, 2021. On August 1, 2021, the\ndebt limit reset to the previous ceiling of $22.0 trillion, plus the\ncumulative borrowing that occurred during the period of suspension. Also,\naccording to the Congressional Budget Office, if the debt limit remains unchanged,\nthe ability to borrow would be exhausted and the Treasury expected to run out\nof cash in the first quarter of the next fiscal year (which begins on October\n1, 2021).<\/p>\n\n\n\n

According\nto the U.S. Treasury, \u201cCongress has always acted when called upon to raise the\ndebt limit. Since 1960, Congress has acted 78 separate times to permanently\nraise, temporarily extend, or revise the definition of the debt limit \u2013 49\ntimes under Republican presidents and 29 times under Democratic presidents.\nCongressional leaders in both parties have recognized that this is necessary.\u201d\nThere\u2019s a reason for that. If you lend money to an individual, business, or\ngovernment and they promise to pay you back, you expect to be paid back. If you\nare not paid back, there are consequences, including the likelihood that you\nwill not lend money again to an entity that did not pay your original loan\nback. In addition, you might really need that loan repaid so you can meet your\nown expenses.<\/p>\n\n\n\n

For\nthe United States to be a global and economic leader, the U.S. should never\ndefault on its debt to investors. The \u201cfiscal responsibility\u201d of the United\nStates should occur each year the U.S. budget is determined. Not paying back\ninvestors that lent money to the U.S. would be fiscal irresponsibility.<\/p>\n\n\n\n

The federal budget deficit refers\nto U.S. federal government spending exceeding government income. <\/p>\n\n\n\n

How does\nthe United States government finance a budget deficit? It basically borrows\nmoney from the public through the issuance of U.S. government debt securities\ncalled U.S. Treasury securities. Who buys this stuff, who are the investors?\nBuyers include individuals (you could open an online account with the U.S.\nTreasury and purchase these securities), large institutional investors, certain\nmutual funds, pension funds, foreign investors, state and local governments, businesses,\nand certain U.S. government agencies.  For\na more complete breakdown, Table 1 below shows the detail of Treasury debt\nownership provided by the U.S. Treasury. The table provides insight as to who\ncould potentially be harmed if the U.S. defaults on its debt.<\/p>\n\n\n\n

Table 1. Estimated Ownership of U.S. Treasury Securities<\/strong>
(billions of dollars) <\/p>\n\n\n\n

\"Table<\/a>
Source: Office of Debt Management, Office of the Under Secretary for Domestic Finance<\/em><\/figcaption><\/figure>\n\n\n\n

The\nfollowing is a list of who and what could potentially be harmed if the U.S.\ndefaults on its debt:<\/p>\n\n\n\n