Major Impacts of Failing to Raise Debt Ceiling

Congress Must Act to Raise the Debt Ceiling to Prevent Catastrophic Economic Consequences

Experts warn that the United States could run out of money to pay its debts between June and September unless Congress raises the debt ceiling. If this happens, the US risks going into an unprecedented default. As the House Republicans and the White House remain in an impasse over lifting the debt limit, the stakes are incredibly high.

The House Republicans led by Speaker Kevin McCarthy have passed a bill that would only raise the ceiling while also slashing spending. The White House stands firm, indicating that they will only accept a clean bill that raises the ceiling without any conditions. Both parties have acknowledged that a default would have catastrophic effects on the US economy.

Treasury Secretary Janet Yellen in her remarks before Congress earlier this year has also cautioned against the US government failing to meet its obligations. She argued that not meeting the obligations would lead to “irreparable harm to the U.S. economy, the livelihoods of all Americans, and global financial stability.” A default could potentially question the United States’ supremacy in the world economic order.

Let us explore some of the likely consequences of a default:

1. Slashed Government Services

If the United States defaults on its debts, one of the most immediate consequences would be slashed government services. The US government would be unable to pay its bills, which means that many essential services would be affected. For instance, the military would not be paid, and some government employees would not receive their salaries. This would inevitably lead to a significant slowdown in government services, with massive negative impacts on the US economy.

2. Impact on the Financial Markets

A default could have massive impacts on the financial markets. The US dollar is considered the global reserve currency, which means that most countries hold US debt. If the United States defaults on its debt, it would cause a significant loss of confidence in the US dollar. This would lead other countries to reconsider holding US debt and selling off their holdings, leading to a significant drop in the dollar’s value.

3. Negative Impacts on Global Growth

Defaulting on the US debt would also have a negative impact on global growth. The United States is the world’s largest economy and has significant links to most countries’ economies worldwide. A default would lead to a significant reduction in trade and investments, causing a slowdown in global growth.

4. Rise in Borrowing Costs

If the United States defaults on its debts, it would lead to a rise in borrowing costs. This would make it more expensive for the government and businesses to borrow money. The increase in borrowing costs would have negative impacts on the US economy and make it more challenging for businesses to expand and create jobs.

5. Negative Impacts on Stock Markets

A default would undoubtedly have negative impacts on the US stock markets. Experts predict that a default could lead to a significant drop in the stock market, causing panic and subsequent sell-offs. This would lead to an overall reduction in investors’ confidence, resulting in a negative economic impact.

In conclusion, the consequences of a default on the US debt are catastrophic, leading to a significant slowdown in government services, negative impacts on the financial markets, global growth, and rise in borrowing costs. Congress must act fast to raise the debt ceiling and prevent these catastrophic consequences from happening. A failure to raise the ceiling could see the United States sliding into a default and tarnishing its economic reputation worldwide.

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