Biden and McCarthy plan to resume debt limit talks (2023)

FAQs

What happens if we reach the debt ceiling? ›

Potential repercussions of reaching the ceiling include a downgrade by credit rating agencies, increased borrowing costs for businesses and homeowners alike, and a dropoff in consumer confidence that could shock the United States' financial market and tip its economy—and the world's—into immediate recession.

The Treasury Department (Treasury) ran up against its $31.4 trillion debt limit and deployed emergency borrowing authority—known as “extraordinary measures”—to continue fully financing government operations on January 19, 2023.

If the debt ceiling isn't raised in time, Treasury and the White House will have to make difficult decisions about which bills to pay with the funds that are available. The US has never missed making payments on its bills before. In fact, in the last 45 years, Congress has adjusted the debt ceiling over 60 times.

U.S. debt, long viewed as ultra-safe

Its debt, long viewed as an ultra-safe asset, is a foundation of global commerce, built on decades of trust in the United States. A default could shatter the $24 trillion market for Treasury debt, cause financial markets to freeze up and ignite an international crisis.

On January 19, 2023, the United States hit its debt ceiling, leading to a debt-ceiling crisis, part of an ongoing political debate within Congress about federal government spending and the national debt that the U.S. government accrues.

Domestic Holders of Federal Debt

The Federal Reserve, which purchases and sells Treasury securities as a means to influence federal interest rates and the nation's money supply, is the largest holder of such debt.

Generally speaking, a debt-to-equity or debt-to-assets ratio below 1.0 would be seen as relatively safe, whereas ratios of 2.0 or higher would be considered risky. Some industries, such as banking, are known for having much higher debt-to-equity ratios than others.

The debt limit caps the total amount of allowable outstanding U.S. federal debt. The U.S. hit that limit—$31.4 trillion—on January 19, 2023, but the Department of the Treasury has been undertaking a set of “extraordinary measures” so that the debt limit does not yet bind.

The debt ceiling bill that House Republicans passed last month would return discretionary spending to fiscal 2022 levels and then limit the growth in spending to 1% for a decade. Defense spending would be protected.

Rising debt means fewer economic opportunities for Americans. Rising debt reduces business investment and slows economic growth. It also increases expectations of higher rates of inflation and erosion of confidence in the U.S. dollar.

How many times has Congress raised the debt ceiling? ›

But the process of raising the debt ceiling isn't a new one in the nation's capital. In the last 82 years, Congress has raised the debt ceiling at least a hundred times. Breaking that down by party, the debt ceiling has been raised 56 times under Republican administrations and 44 times during Democratic ones.

WASHINGTON (AP) — Treasury Secretary Janet Yellen said Friday the projected debt ceiling deadline is extended to June 5, four days later than previously estimated.

Which countries hold the most US debt? Over the past 20 years, Japan and China have owned more US Treasuries than any other foreign nation. Between 2000 and 2022, Japan grew from owning $534 billion to just over $1 trillion, while China's ownership grew from $101 billion to $855 billion.

To pay back one million dollars, at a rate of one dollar per second, would take you 11.5 days. To pay back one billion dollars, at a rate of one dollar per second, would take you 32 years. To pay back one trillion dollars, at a rate of one dollar per second, would take you 31,688 years.

As a result, the U.S. actually did become debt free, for the first and only time, at the beginning of 1835 and stayed that way until 1837. It remains the only time that a major country was without debt. Jackson and his followers believed that freedom from debt was the linchpin in establishing a free republic.

Since the government almost always spends more than it takes in via taxes and other revenue, the national debt continues to rise. To finance federal budget deficits, the U.S. government issues government bonds, known as Treasuries.

Louis Fed shows America's debt-to-GDP ratio is about 120 percent, thanks in part to COVID-driven spending in 2020. The ratio has typically spiked at the end of America's wars. It hit 113 percent right after World War II. The modern low was around 30 percent in 1981.

U.S. debt to China comes in the form of U.S. Treasuries, largely due to their safety and stability. Although there are worries about China selling off U.S. debt, which would hamper economic growth, doing so in large amounts poses risks for China as well, making it unlikely to happen.

Is China in a debt crisis? ›

China's debt is nearly 44% of its GDP and its local governments owe nearly $5.14 trillion. With the economic slowdown and collapse of land sales revenue, provinces and local governments in China are facing an embarrassing situation.

Worse than being in debt is losing your peace.

It's called being human. For some people that adversity takes the form of being in debt. The main thing is to keep your peace, to know that God is taking care of each of us, and to remember to trust Him to provide.

If your total balance is more than 30% of the total credit limit, you may be in too much debt. Some experts consider it best to keep credit utilization between 1% and 10%, while anything between 11% and 30% is typically considered good.

35% or less: Looking Good - Relative to your income, your debt is at a manageable level. You most likely have money left over for saving or spending after you've paid your bills. Lenders generally view a lower DTI as favorable.

China and Japan are the largest foreign investors in American government debt. Together they own $2 trillion — more than a quarter — of the $7.6 trillion in US Treasury securities held by foreign countries.

Average American household debt statistics

The average American holds a debt balance of $96,371, according to 2021 Experian data, the latest data available.

The best example can be taken from Hong Kong (it is a one of the debt free countries), whose economy has the least debt to GDP ratio. It is an almost debt free country. It has a well-regulated financial system and large foreign reserves.

You can't be arrested for debt just because you're behind on payments. No creditor of consumer debt — including credit cards, medical debt, a payday loan, mortgage or student loans — can force you to be arrested, jailed or put in any kind of court-ordered community service.

The average U.S. household has $6,473 in credit card debt

Many Americans use credit cards to pay for purchases, and it turns out many have outstanding account balances.

Why has the US debt increased over time? ›

Nearly every year, the government spends more than it collects in taxes and other revenue, resulting in a deficit. (The debt ceiling, set by Congress, caps how much the U.S. can borrow to pay for its remaining bills.) The national debt, now at a historic high, is the buildup of its deficits over time.

Several countries have debt limitation laws in place. Only Denmark and the United States have a debt ceiling that is set at an absolute amount rather than a percentage of GDP. The US Congress began using the measure in 1917 and modified the financing law in 1939 to give the treasury more flexibility in issuing debt.

The ceiling was suspended three times: from September 30, 2017, to December 8, 2017; from December 8, 2017 to March 1, 2019; and, after concerns were raised from Treasury in July 2019 of an unexpected shortfall due to reduced tax receipts under Trump's tax legislation, from August 2, 2019 to July 31, 2021.

The debt ceiling was raised 74 times from March 1962 to May 2011, including 18 times under Ronald Reagan, eight times under Bill Clinton, and seven times under George W. Bush. In practice, the debt ceiling has never been reduced, even though the public debt itself may have reduced.

The United States, holding the highest national debt globally, has a total of $31.68 trillion, representing a YoY increase of $1.3 trillion or 4.28%, reaching $30.38 trillion. Therefore, China's national debt has surged almost three times that of the United States in the past 12 months.

Japan's debt-to-GDP ratio is the highest in the world due to a prolonged period of economic stagnation and demographic challenges.

Nearly all of that debt – about $31.38 trillion – is subject to the statutory debt limit, leaving just $25 million in unused borrowing capacity. For several years, the nation's debt has been bigger than its gross domestic product, which was $26.13 trillion in the fourth quarter of 2022.

Unless there is an increase in economic activity commensurate with the amount of money that is created, printing money to pay off the debt would make inflation worse. This would be, as the saying goes, "too much money chasing too few goods."

Total US federal government debt breached $30 trillion mark for the first time in history in February 2022. As of February 2023, total federal debt was $31.5 trillion; $24.6 trillion held by the public and $6.9 trillion in intragovernmental debt.

Do countries still owe the US money from ww2? ›

The case of debts arising from World War II is somewhat less complicated. At this time only four countries, discussed below, owe the U.S. government debts of any size arising from World War II programs to aid our allies. Other countries have paid their debts in full.

Japan is the second-largest foreign holder of U. S. debt after China, with holdings totaling nearly $1. 3 trillion in September 2020. Japan's large holdings of U. S. debt can be attributed to Japan's large trade surplus, low-interest rates, and limited investment opportunities in their own domestic markets.