US Debt Ceiling Explained: Why It Matters to Markets

The standoff over the US debt ceiling is an example of Washington dysfunction that could spill over into global financial markets. Bloomberg Quicktake’s Scarlet Fu explains what the debt ceiling is and why it matters.

President Joe Biden and congressional Democrats will ultimately retreat from their insistence on a “clean” increase in the federal debt ceiling, the majority of economists in a Bloomberg survey said — predicting an end to the partisan standoff with little risk of default and a limited effect on the US economy and financial markets.

Around 71% of the 51 economists surveyed last week see less than a 10% chance of a payments default, and all respondents agreed that it is more likely than not that Congress raises the debt ceiling before the US reaches its X-date, when the Treasury Department officially runs out of fiscal space. Extraordinary measures used to keep payments going could be exhausted as soon as early June, Treasury Secretary Janet Yellen has signaled.

But the economists were split on exactly how lawmakers would get there: about 40% predict Congress will establish a panel to stabilize the long-term fiscal picture, and just under a third think Republicans will be successful in exacting spending cuts out of the negotiations. Only five — under 20% — see a clean hike as the White House has demanded.

Biden and House Speaker Kevin McCarthy are set to meet on Wednesday to discuss the debt limit, and it’s unclear exactly what the California Republican will propose.

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[w-is]

Cut the military, government pension, and government salary. Raise taxes on the rich and corporation. Then you don't need to raise the debt ceiling.

[blabberwulf]

The Federal Reserve is not funded by congressional appropriations. Its operations are financed primarily from the interest earned on the securities it owns—securities acquired in the course of the Federal Reserve's open market operations.

How much did they make ...or lose ?

Here's how it works. The Fed purchases securities from a bank (or securities dealer) and pays for the securities by adding a credit to the bank's reserve (or to the dealer's account) for the amount purchased.

[momtenjillian]

Doesn't anyone realize that a deal to raise our debt limit can be affirmed without letting the extremists on both sides crash our economy? Centrists will always strive to meet in the middle to move our nation forward. Centrism has made America great and will continue to do so. 🇺🇸

[willrose]

So I'm not paying personal loans until I get livable housing.

[richardmaclean]

Look… I set out hummingbird feeders, but those other birds keep insisting on drinking out of them, even though they can’t. They need a longer beak.

Republicans are holding your tax dollars hostage while you’re unable to buy eggs.
#DebtCeiling

[albertpacajpacaj]

Arbeit wird aus Liebe gemacht und nicht für geld 💰

[johnchieze]

it's all about spending stupid. a nation is judged on how it treats its elderly and military personnel, and both major parties in the fed gvt are holding them hostage. answ: invest in precious metals commodities!

[klemon]

More money isn’t the answer let it collapse