ROCHESTER, N.Y. – Negotiations to raise the national debt ceiling stalled again on Friday.
On Thursday evening, House Majority Leader Kevin McCarthy was optimistic. It was then. This is now After an hour of behind-closed-door talks, negotiators said no progress had been made and they needed to say “pause.”
Republicans want big spending cuts before agreeing to raise the debt ceiling. Democrats disagree, arguing that raising the debt ceiling should not be tied to programs or policy decisions. And the day of default is approaching. Treasury Secretary Janet Yellen said that could happen as early as June 1.
So what exactly is a debt ceiling? Let’s take a closer look. The debt ceiling is the amount that Congress has agreed the United States can borrow. The national debt is now over $31.4 trillion. The debt ceiling is just over $31.3 trillion. Clearly, we’re already over the debt ceiling, so Yellen says he took various accounting tricks to keep us alive.
But she warned that she could default by June 1. Interest payments on our national debt are estimated at about $395.5 billion. Failure to pay interest would be the first default in U.S. history and could be devastating.
Here’s why. Currently, US Treasuries are considered one of the safest investments in the world. A default means these bonds lose their value, making us even poorer and potentially triggering a recession that is felt around the world. For example, Japan holds $1.1 trillion of US Treasuries. A downgrade in the valuation of these bonds would also have a significant impact on them.
And think about the 401k. You may have a mix of stocks and bonds. Bonds don’t yield as much, but are considered one of the safest investments in the world. If the US is deemed to have made these bonds less secure because of its default, the retirement nest egg will suddenly shrink.
But its impact goes far beyond personal investment. Banks use bonds to balance risky investments. The same is true for companies. The domino effect can be devastating.
This is what many economists speculate. It’s never happened before, so I don’t know for sure. And Congress knows that can’t happen now.
