If that ceiling is not raised in time, the country will have to suspend all non-essential services. In the worst-case scenario, they will default on public debt, something quite embarrassing for a country that is the issuer of the world currency.
Since the introduction of the debt ceiling in 1917, the federal government has had to close its doors ten times. The underlying cause is usually a political conflict between the Republicans and the Democrats over certain legislation; raising the ceiling is used as a stick behind the door to opposing each other.
Because such a ceiling has no economic benefit, after all, it is the creditors, and not the debtor themselves, who determine whether a debt can be increased.
Since the Obama days, when the battle for the debt ceiling reached its lowest point and even led to a downgrade of the United States’ credit rating, the call for a creative solution to this problem has been growing.
One such solution would be to mint a platinum coin, with a face value of $1000 billion, by the US Treasury Department, which could then be deposited into the country’s account with the central bank, giving the country a temporary refund to have some financial space. ‘Mint the coin’ is the slogan of the supporters of the idea.
The coin must be platinum because an old obscure law allows the Treasury Department to issue such coins of any face value for whatever reason.
The idea has never been put into practice until now. That’s right because it doesn’t solve anything in the end.
A really creative solution would be to amend the US legislation to remove the cap since all spending financing must already be approved by Congress anyway.
There are also arbitrary rules about government debt, but at least they are still relative, ie not a nominal amount, but not larger than 60% of the economy.
And they are not really enforced, because there are countries that have never complied with them and in a bit of crisis the rules are suspended anyway.
But more importantly: adjustments to those rules are being considered, although it will take some time before there will be white smoke about it.
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