Before the debt ceiling was created, the President had free reign on the country’s finances.
In 1917, the debt ceiling was created during World War I to hold the President fiscally responsible.
Over time, the debt ceiling has been raised whenever the United States comes close to hitting the limit. By hitting the limit and missing an interest payment to bondholders, the United States would be in default, lowering its credit rating and increasing the cost of its debt.
There has been controversy over whether the debt ceiling is constitutional. According to the 14th Amendment of the Constitution, “The validity of the public debt of the United States, authorized by law … shall not be questioned.
” The majority of democratic countries do not have a debt ceiling, with the United States being one of the exceptions. Source: Investopedia
Q: What happens if Congress doesn’t raise the debt ceiling in time? It’s impossible to say with certainty. But generally speaking, nothing good will come of it unless you’re very self sufficient and ready to fully be able to take care of yourself/family.
Treasury would not be permitted to borrow. So it would only be able to pay those bills for which it has enough revenue on hand. Problem is, there won’t be enough revenue on hand to cover the payments due on any given day.
So who would get paid and who would get stiffed? Treasury would be forced to make legally questionable decisions — either picking winners and losers, or choosing to delay payments to everyone.
“The reality would be chaotic,” the Bipartisan Policy Center concludes in an analysis of Treasury’s cash flow.
Some say the country could avoid default if Treasury simply chooses to pay interest due to bondholders first. It’s not as simple as it sounds, but that is what most experts expect Treasury would do since defaulting on U.S. bonds would cripple the economy, send markets into a tailspin and potentially “trigger another catastrophic financial crisis,” in the words of the Treasury Borrowing Advisory Committee.
But if the debt ceiling standoff persists, there’s no guarantee that paying interest but shirking other legal obligations will protect the country from the perception of default or at least instability. In the comments below, what do you think will happen if the debt ceiling is not raised? Should it be raised?