The USA has 31 Trillion Dollars in debt.
FYI they produce $25.46 trillion worth of products and services EVERY SINGLE YEAR.
The problem is: in a given year the US seems to owe more than it produces.
But, can the US do it?
ABSOLUTELY YES.
Because they have these green bills called the US Dollar, they create it, print it, control it, and cherish it.
But not so fast.
The debt ceiling was created in 1917 during World War I to solidify the promise that the government will not screw the financial system up while spending money on the war. In other words, it was a part of a checks and balances system. This debt ceiling idea was just 4 years after the Federal Reserve which prints the dollar was created (1913) and the system was just at it’s infancy.
Fast forward more than 100 years later. This same debt ceiling issue comes to play. Below is a beautiful visual from visual capitalist shows what is happening.
If the Government spends more than it earns and it wants to spend more. Then it needs to raise the debt ceiling level to be able to borrow more money (from everyone in the world). This has to be approved by congress. If the congress doesn’t raise the ceiling, the government will have nothing to spend. This means the US government DEFAULTs.
As I mentioned in my notes, and contrary to the popular opinion similar default behavior happened before. Some claim that these are soft default events including the popular Quantitative Easing program where the government just prints money (digitally….more on that later).
When this happens, it is always followed by big problems in the economy.
Fingers crossed 🤞 hoping a default does not happen.
Now there is tug of war in the US between those who want the government to spend more and those who want to spend less (Biden vs McCarthy). It seems things are getting resolved.
Economists call the default day X-day, if no resolution is reached it would be sometime next week or the week after, if the US government runs out of money, they may partially shut down and/or default.
What do you think will happen?