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Today, the world is facing an unprecedented crisis.
When Russia invaded Ukraine, the world came as close to nuclear war as it did during the height of the Cold War. US inflation is over her 300% normal. Other developed countries associated with this effort, such as the UK, saw even greater inflation. Supply chains are still disrupted around the world. Once upon a time, rare experiences such as shortages of formula have become commonplace in our society. Covid remains a lethal force for both people and businesses in countries such as China. It’s making it more difficult.
With all these challenges in the world, America must come together to overcome them and sustain our economic progress into the next phase of history.
Given all these issues, I am deeply disappointed that a fully fabricated crisis – the debt ceiling – is on the horizon.
Even economists sometimes confuse the debt ceiling. To understand the debt ceiling crisis, imagine that every time you pay off your credit card balance at the end of the month, your bank has to authorize the transfer of funds. When your bank says “yes, you can pay your credit card company what you owe” your life will change from now on.You can pay off your debt and keep your credit score high. . Now let’s say your bank tells you that you have enough money this month, but you cannot pay your credit card balance. I can’t pay my bill. You will be forced to pay penalties and may face higher interest rates in the future. If you want to secure a loan to buy a boat or a house, you will be forced to pay a higher interest rate on the loan than your peers. Why would a bank doom you to this fate? They want you to spend less money in the future. I can’t imagine anyone not getting frustrated and angry when faced with this scenario.
In this metaphor, the House of Representatives is a bank, or institution that allows the United States to pay its outstanding balances.
Democrats want the government to be able to service its debt by raising the debt ceiling. Republicans refuse to pay the debt unless they commit to cutting spending in the future.
The federal budget is set by Congress. However, this is a separate issue from the debt ceiling. Your budget will determine how much you will spend in the coming year. Raising the debt ceiling would allow the government to pay for purchases made in the previous year already approved by Congress.
Last Thursday, the government reached its debt ceiling. If we don’t raise it soon, the US will default on its debt.
Defaults cause higher interest rates and borrowing costs. Many in the economy could lose their income, including federal workers and those receiving Social Security. As businesses lose customers, this loss of revenue adversely affects the economy as a whole. With our country currently on the brink of recession, a federal default would send the country into a massive recession that would spread throughout the global economy. Millions will lose their jobs in the United States alone.
This is not the first debt ceiling crisis our country has faced. In 2011, members of the Tea Party movement lobbied the newly empowered Republican Party to reject raising the debt ceiling to take advantage of future spending cuts. The United States narrowly averted catastrophe. However, the legislature’s drive to destroy the economy has caused the US credit rating to be lowered. Ironically, the Republican desire to cut spending has increased her government borrowing costs by $18.9 billion. In 2013, Republicans again refused to raise the debt ceiling unless the Affordable Care Act was repealed. The less destructive debate about the debt ceiling is becoming more popular.
In each of these crises, those who refuse to raise the debt ceiling as a way of enforcing future profits are acting recklessly and wrongly. People are incredibly immoral. Americans have been through a lot in the last few years. They deserve much better treatment than this treatment.
We must ask ourselves why we allow such treatment by elected officials. At the very least, we need to reform the system to stop these villains.
A good start would be to remove the outdated and useless debt ceiling.
Zachary Cohle is an Assistant Professor of Economics at Saginaw Valley State University.
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