President Joe Biden has less than two weeks to prevent the country from defaulting on its debt for the first time in history – which would cause fiscal chaos for millions of Americans.
On Monday afternoon, he will meet with Kevin McCarthy at the White House to try to hammer out a deal to avert what could be a dire economic situation.
The United States hit its $31.4 trillion debt ceiling in January and since then the Treasury has used what it describes as “extraordinary measures” to keep its accounts afloat.
Treasury Secretary Janet Yellen has warned that the government may not be able to pay all its bills on time from June 1.
As Biden plans to raise the debt ceiling, McCarthy has insisted the bill will not pass through Congress.
Each side doubled their demands. McCarthy wants tougher work requirements for federal aid programs and budget cats for six years. Biden only wants caps for two years and is pushing for revenue-raising measures such as wealth taxes.
The GOP has already passed its own bill — the Limits, Savings, and Growth Act — in the House, but it’s a long way to get it through the Senate.
A default could lead to delayed Social Security payments, lower investment and soaring mortgage rates
Progressive Democrats are also urging Biden not to consider tougher work requirements for benefits programs and have told him to consider using the 14th Amendment to declare the debt limit unconstitutional.
If an agreement is not reached quickly, the United States could default on its debt, which would be a disaster for households.
Experts say it could lead to the loss of seven million jobs – if default lasts longer than six weeks – investments plummet and mortgage payments rise.
Here, Dailymail.com breaks down the crisis and what it means for everyday Americans…
What is the debt limit?
The debt ceiling is a cap on the amount of money the federal government is allowed to borrow. Currently, it stands at $31.4 trillion – but that limit was reached on January 19.
The limit was introduced in the Second Liberty Bond Act of 1917. Most other countries do not have a limit. Denmark, for example, does, but it is so high that increasing it is rarely a problem.
The United States has budget deficits, which means it spends more than it brings in through taxes and other revenues.
This includes spending on social safety net programs, interest on debt, and military funding.
Lifting the debt ceiling does not authorize any new spending, it simply allows the United States to continue financing its existing obligations.
President Biden will go with President Kevin McCarthy on the debt ceiling in their first discussions on the issue in more than three months
What happens next?
Since the debt limit was reached, the Treasury Department said it had been forced to resort to “extraordinary measures” to meet its obligations.
These measures include reducing some government investments to continue paying the bills.
But authorities are close to exhausting all options, which means they could run out of money on what’s being called the X date. one week.
The government can choose to lift or suspend the limit that is currently Biden’s plan.
The debt ceiling was raised relatively regularly, but it became an increasingly political issue.
If Congress fails to agree, the country will effectively run out of money and be unable to pay its bills.
How will a default affect households?
Social Security payments could be stopped overnight if the country defaults on its debt.
About 66 million retirees, disabled workers and others receive monthly benefits that total $1,827 per month on average. About two-thirds of recipients depend on social security for at least half of their income.
About $25 billion is sent every week, according to the Congressional Budget Office.
Other government payments could also be affected, including food stamp and municipal funding for Medicaid.
Additionally, about two million federal civilian workers and 1.4 million active-duty military personnel could see their paychecks delayed.
McCarthy, with the weight of House and Senate Republicans behind him, insists there won’t be a clean debt cap bill going through Congress
Investments could also suffer. Even if the problem is resolved quickly before a default materializes, experts say the shares could lose up to a third of their value.
In real terms, that would wipe out $12 trillion in household wealth, according to Moody’s Analytics.
And a default could trigger a rise in US Treasury yields to account for the increased risk.
Treasury yields generally set the benchmark for interest rates, loans, credit cards and mortgages.
This means that the repayment rates of all these loans could increase further.
Finally, a payment default could trigger an economic collapse.
If the default lasts a week, nearly a million jobs would be lost, according to Moody’s Analytics.
But if it lasted six weeks, more than 7 million jobs would be lost, pushing the unemployment rate above 8%. Many of them would be in the financial sector after being shaken by the fall in stock market values.
The effects of that would still be felt a decade from now, Moody’s economists said. CNN.
Has the United States ever been in this position before?
The United States has never defaulted on its debt in history, so it’s hard to know exactly what will happen.
In 2011, the country was in a similar crisis under Barack Obama who also faced a Republican House opposed to raising the ceiling.
As the ceiling was raised, the threat of default was enough to throw US financial markets into turmoil and the US saw its credit rating downgraded from AAA to AA+ as a result.