The United States may reach the legal debt ceiling of US$31.4 trillion on Thursday (19th).

(Reuters file photo)

The U.S. has raised the debt ceiling 78 times in 63 years

[Financial Channel/Comprehensive Report] U.S. Treasury Secretary Janet Yellen recently warned that the U.S. may reach the statutory debt ceiling of US$31.4 trillion (approximately NT$950 trillion) on Thursday (19th), if Congress does not take timely action , which may lead the United States to face the risk of default and threaten the operation of the government.

From the perspective of historical experience, similar incidents have been staged many times.

The United States established the debt ceiling in 1917 to give the government more flexibility in borrowing. Every increase in the ceiling must be passed by Congress to ensure that the United States does meet its debt obligations and avoid catastrophic defaults.

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According to the U.S. Treasury Department, since 1960, the U.S. Congress has taken 78 actions to permanently or temporarily extend the debt maturity or modify the debt ceiling.

It has happened under either Democratic or Republican presidents, 29 and 49 times, respectively.

Yellen called on Congress to act expeditiously to raise the debt ceiling to protect the creditworthiness of the United States, which Treasury believes is clearly bipartisan and necessary to avoid irreparable damage to the U.S. economy, the livelihoods of all Americans, and global financial stability measure.

The last time the U.S. hit the debt ceiling was in 2011, when Standard & Poor's (S&P) downgraded the country's credit rating from AAA to AA+ for the first time.

(Photo by European News Agency)

2011 U.S. debt default crisis Financial market turmoil

The last time the U.S. hit the debt ceiling was in 2011, during the first term of the Obama administration and the Republican-controlled House of Representatives.

Some of the social programs promoted by then-President Barack Obama sparked dissatisfaction among Republicans who believed the government had pushed the national debt too high.

The debt ceiling was reached after the Republican-led House refused to pass legislation.

In the end, Republicans agreed to approve an increase in the debt ceiling in exchange for substantial future spending cuts.

Although the U.S. escaped a crisis of debt default, the impasse still roiled markets and sent stocks falling. The associated economic costs were huge, when Standard & Poor's (S&P) downgraded the U.S. credit rating from AAA to AA+ for the first time.

The U.S. Treasury Department also found that the delay in raising the limit hurt the economy, which took months to recover and forced cuts in domestic and military spending for years.

The U.S. Congress has reached an impasse over the debt ceiling issue, again facing the risk of default.

(Reuters file photo)

35-day US government shutdown in 2018

The debt ceiling dispute seems to have become a drama that will be staged for a while. In 2013, there was another debt ceiling conflict in the United States. The Democrats demanded that the debt ceiling be raised to US$16.7 trillion (about NT$505 trillion), while the Republicans asked Insisting on budget cuts in exchange, the two parties were at a stalemate, so the U.S. government shut down for as long as 16 days, leading to severe financial market turmoil and economic pressure.

According to the estimates of the analysis agency at the time, as long as the government shuts down for one day, the economic loss will be at least US$300 million (about NT$9 billion). If the shutdown lasts for more than three weeks, the economic loss will be as high as US$55 billion (about NT$1.6 trillion). ), nearly the combined damages of Katrina and Sandy.

In 2018, the U.S. Congress also failed to pass the budget within the time limit due to the boycott of senators. As a result, the federal government shut down twice within three weeks.

And from December 22, 2018 to January 25, 2019, the government had the longest 35-day shutdown in history. This was because the former President Trump proposed a spending plan for the US-Mexico border wall, and the two parties were deadlocked.

In the fall of 2021, the United States once again faced the problem of running out of government funds. At that time, people from both parties reached a short-term agreement to extend the debt period. After several months of stalemate, the leaders of the two parties finally drafted a bill that was passed by Congress to raise the debt ceiling. US$2.5 trillion (about NT$75 trillion) to US$31.4 trillion (NT$95.1 trillion), avoiding default again.

In the past, the United States has repeatedly reached a deadlock between the two parties over the debt ceiling issue, leading to a government shutdown for several days.

(Reuters file photo)

A U.S. debt default could have devastating consequences

The recent debt ceiling crisis is similar to the background of the US government in 2011, with the Democrats controlling the White House and the Senate and the Republicans controlling the House of Representatives.

In the past period of time, the confrontation between the two parties in Washington seems to only increase, especially on the issue of government spending, where the differences between the two parties are quite obvious.

Never in the past has the U.S. faced a default over its failure to raise the debt ceiling in a timely manner, which also represents unpredictable consequences that economists and Wall Street analysts have warned could be devastating to the economy and could plunge the world into a global crisis. financial crisis.

If the U.S. does default, U.S. Treasuries, widely regarded as one of the world's most reliable investments in the past, will no longer be considered so, and it could also trigger an economic recession, including higher unemployment, plummeting stock and bond markets, and a reduction in federal social welfare benefits. will be affected.

The U.S. Federal Reserve is grappling with record-high inflation, and many analysts have predicted a recession this year that could be much worse, triggered by a U.S. default.

Although Congress is widely expected to eventually raise the debt ceiling, the process until then can cause massive economic harm, and past experience shows that even brinkmanship can hurt investors, consumers, and businesses .

Taking 2011 as an example, about 10 days before the default deadline, U.S. stocks began to plummet. By mid-August, the S&P 500 index had fallen by 17% from its peak in July of that year, and it took the market 6 months. , to recover these losses.

U.S. Treasury Secretary Janet Yellen called on Congress to take timely action to prevent the U.S. from facing a default on its debt.

(Bloomberg file photo)

Has the U.S. Department of the Treasury filed a record?

In order to avoid a default by the United States, the Treasury Department stated that it will enact a series of "extraordinary measures" to continue to meet the United States' fiscal obligations, adding that the United States can raise enough money from cash reserves and accounting tools to maintain Thursday's (19th) after the funds, but these rights are not unlimited.

Yellen estimated that such measures may delay the risk of default until early June, but unless Congress raises the ceiling, the United States could still breach the debt ceiling and cause a serious default. have devastating consequences for the economy.

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