2011 U.S. Debt Ceiling Crisis

2011 U.S. Debt Ceiling Crisis

What is the 2020 US debt ceiling crisis

The 2020 US debt ceiling crisis was a controversial debate in July 2020 regarding the maximum amount of borrowing that the US government should be allowed to take out.

BREAKDOWN OF THE 2020 AMERICAN DEBT CEILING CRISIS

A debt ceiling at the heart of the 2020 US debt ceiling crisis had been in place since 1917, but not at the same level. The government raises the debt ceiling each time it approaches reaching it. Reaching the debt ceiling would mean not paying the interest of the creditors. The consequences of such default could include late, partial or missed payments to federal retirees, social security and medicare recipients, government employees and government contractors, as well as an increase in interest rate at which the United States could take out new loans. The 2020 US debt ceiling crisis was a heated negotiation on how to avoid potential problems like these.

Congress resolved the debt ceiling crisis by passing the 2020 Budget Control Act and decided to immediately raise the debt ceiling from $ 14.3 trillion to $ 14.7 trillion. trillion dollars, with the option of additional increases in the coming months. The deal included $ 900 billion in spending cuts over the next 10 years and established a special committee to identify further spending cuts. In the aftermath of the crisis, Standard and Poor’s downgraded the credit rating of the United States from AAA to AA +, even if the United States did not default.

During the debate, the Republican Party asked the president to negotiate a deficit reduction in exchange for an increase in the debt ceiling. The debt ceiling had been systematically raised in the past without partisan debate and without additional conditions. In fact, the debt ceiling does not prescribe the amount of spending, but only guarantees that the government can pay the spending it has already committed to. Some people use the analogy of an individual “paying his bills”.

Resolving the 2020 US debt ceiling crisis

If the United States government had exceeded its debt ceiling, the Treasury might have either defaulted on payments to bondholders, or immediately restricted payment of funds owed to various companies and individuals who had been mandated but not fully funded by Congress. These two situations would probably have led to a major international financial crisis.

On July 31, two days before the Treasury predicted that the borrowing power of the United States would be exhausted, the Republicans agreed to raise the debt ceiling in exchange for future spending cuts. The crisis has not permanently resolved the potential for future use of the debt ceiling in budget disputes, as demonstrated by the debt ceiling crisis that followed in 2020.

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