The United States just hit its debt limit, and while that might sound super technical and uninteresting, it could spell real trouble for everyday Americans.
The debt limit sounds a lot more complicated than it really is. The debt limit is simply the amount of money the government is allowed to borrow to meet its existing obligations like social security, medicare, and loan payments. Congress sets the debt limit, but has had to raise it repeatedly so the federal government can continue paying its bills.
That’s all well and good, but what happens if we hit the debt limit and Congress doesn’t want to raise it?
The scary answer: a massive financial crisis.
At the moment, the debt ceiling is at $31.4 trillion, and Republicans, who control the House, have vowed not to raise it unless their spending cut demands are met. In the meantime, Treasury Secretary Janet Yellen said that the government is using “extraordinary measures,” to allow the United States to continue paying its bills.
She also urged lawmakers to raise the debt limit since those measures won’t hold out forever.
If Congress fails to raise the debt limit, the United States may be unable to pay for things like social security, medicare, federal salaries, and the interest on its loans.
So far, the United States has never failed to pay the interest on its loans. If the U.S. goes into default not only could it plunge the country into a deep recession, it could also destabilize markets globally.
Going over the debt limit could also have disastrous results for people who rely on social security, medicare, unemployment insurance, and other social welfare programs that require government spending.
This would be especially disastrous for Black and low-income communities, who disproportionately rely on these programs.
High-rates of unemployment caused by a recession would also be more likely to hurt Black Americans. Research shows that Black Americans are typically the first to be hit by high-unemployment rates, and the slowest group to recover following a recession.
With all of these concerns in mind, how soon should we start panicking?
Well, Yellen says that Congress has until June to extend the debt limit. After that, the treasury will no longer be able to meet its obligations.
That’s somewhat reassuring, but the exact date is tricky to predict, which is why Yellen is calling on Congress to act now.
Republicans have previously used this scenario as a way to get concessions out of Democrats. Folks may remember the 2011 debacle, where Republicans nearly allowed the United States to go into default in order to get spending cuts out of President Barack Obama.
A similar showdown is more than likely to repeat itself this year since Republicans maintain control of the House. It’s unclear how many programs they’ll try to cut in exchange for not blowing up the economy.