A subject that has been in the news a lot lately is the political fight over the debt limit. Some Congress members are in favor of raising the debt limit to avoid a default on the U.S’s loan payments, but others believe that since they are not part of the congressional majority, it is not their responsibility to vote to raise the limit. The fight can be very hard to comprehend, but what we can start with is: what is the debt limit?
In simple terms, it is the legal amount of debt the U.S government can accrue, one example of which is deficit spending. If the national debt passes the debt limit, it’s possible that the government can default on a loan payment, which could be catastrophic for the economy. Since the government typically pays back loans to holders of government bonds, these bonds might be seen as a less safe investment in the future. This could result in interest rates going up, bond prices going up, and less investment in them, leading to less funds for the government. Additionally, since many foreign governments have invested in U.S bonds, a global recession could occur.
In this case, raising the debt limit is a priority for the government, in order to avoid large negative consequences for the U.S and world economy.