President-elect Donald Trump put the spotlight on Wednesday debt ceilingRejecting the bipartisan government funding deal negotiated by House Speaker Mike Johnson and requiring lawmakers to raise the debt ceiling as they fund the government.
But in one Thursday interview With ABC News’ Jonathan Karl, Trump suggested the impact of the US government not passing his bills “may not mean anything.”
“No one really knows. It doesn’t mean anything, but it means a lot psychologically, right? In other words, it has no real meaning other than that you violated something,” Trump told Karl. “And that might, you know, one day be half a story, or it might lead to the depression of 1929, and nobody wants to take a chance, except the Democrats.”
Despite Trump’s suggestion, economic experts say they agree that breaching the debt ceiling would certainly lead to economic chaos.
The US Capitol is seen on Capitol Hill in Washington on December 19, 2024.
Anna Rose Layden/Reuters
“It would be disastrous for the American economy, global financial markets and millions of families and workers whose financial security would be jeopardized by late payments,” Treasury Secretary Janet Yellen told lawmakers. In a deadlock over the 2021 debt ceiling.
Raising the debt ceiling, Yellen declared, “is necessary to avoid a catastrophic event for our economy.”
Here are examples of the debt ceiling and the consequences if the US is unable to pay its debts.
What is the debt ceiling?
The debt ceiling is a limit on the amount of money the US government can borrow to pay off its debts.
Every year, Congress approves a budget that includes infrastructure, federal employee wages, and programs like Social Security. Congress also taxes the people to pay for all this spending. But for years, the government has been spending more than it takes in from taxes and other revenue, increasing the federal deficit.
The government must borrow money to continue paying what Congress has already approved, but the debt ceiling places a limit on how much money the US government can borrow to pay its bills.
Senator John Thune speaks to reporters on the budget continuing resolution proposal to avert a government shutdown at the U.S. Capitol on December 18, 2024 in Washington.
Chip Somodevilla/Getty Images
What if the US couldn’t pay its bills?
If the government can’t borrow money to keep paying for programs, there will be real-world consequences for millions of people. Here are some of the possibilities, according to the Treasury Department and the Committee on a Responsible Federal Budget, a nonpartisan organization.
- Millions of seniors could stop receiving Social Security payments or see delays.
- The credit quality of the United States could go down, raising interest rates, which would increase payments on mortgages, cars and credit cards.
- Uncertainty about the reliable U.S. currency could plunge markets, hurting 401(k)s and other investments (The SThe &P 500 lost 17% in the months leading up to the debt ceiling in 2011.)
- US military service members can stop receiving pay
- Veterans’ benefits could be stopped or delayed
- Postal workers and federal employees can stop receiving paychecks
- Federal Emergency Management Agency funding for hurricane and wildfire victims could be halted
- Child feeding programs and other nutritional assistance may be stopped
In 2023, Moody’s Analytics appreciated That a prolonged breach of the debt ceiling would have consequences comparable to the 2008 economic crisis. He said it could cost the economy more than 7 million jobs and see stock prices drop by nearly one-fifth, wiping out $10 trillion in household debt.
House Speaker Mike Johnson takes questions from reporters after introducing the final version of a pending interim bill to his caucus, at the Capitol in Washington, Dec. 17, 2024.
J. Scott Applewhite/AP
Would this be worse than a government shutdown?
yes This is a bigger deal than a government shutdown. A government shutdown occurs when Congress fails to pass a new spending bill for the next fiscal year, so new payments, such as paychecks, stop. In 2019, about 800,000 federal workers were affected by the government shutdown and markets plunged.
But the US has never paid off its debt. This unprecedented situation would destabilize the markets, raise interest rates and destroy the economic system. Some payments that continue during government shutdowns, such as Social Security payments that many seniors rely on as income, may stop.
“Many more parties are underpaid by default,” the Committee on a Responsible Federal Budget said. “Without enough money to pay its bills, any payment is at risk, including all government spending, mandatory payments, interest on our debt and payments to U.S. bondholders. While a sustained government shutdown would be harmful, a government default could be disastrous.”
Since the debt ceiling system was established in 1917, Congress has never raised the debt ceiling. Congress has voted 78 times to raise or suspend the debt limit since 1960.
