Compromise on debt ceiling could reward U.S.
As the U.S. debt-ceiling clock ticks down, let’s get one thing straight. No matter what you’ve read or heard, the United States government will not default on its debt.
The United States has a law, dating back more than 100 years, under which Congress approves the maximum amount of debt the government can incur. Every few years, the government reaches that limit, and Congress must approve a raising of the ceiling. Whenever Democrats control the White House and Republicans control the House of Representatives – as they do now – it has become habit for the Republicans to demand budget concessions before they agree to increase the ceiling.
To be clear, neither the IMF nor the rating agencies predict an actual U.S. default. If the debt ceiling is reached, and not raised, the most likely scenario is that the government will make its required debt payments with incoming revenue . Whatever incoming revenue that is left over will pay for government programs, benefits to individuals , and public employee wages. By the letter of the debt-ceiling law, borrowing wouldn’t be an option.The U.S.
Which is all a compelling argument for the combatants on both sides to accept the Biden-McCarthy deal, or something close to it. In fact, this sort of compromise – in which the Democrats accept a cap on non-military discretionary spending, while the Republican relent on the much deeper spending cuts that they wanted – might actually turn this entire mess into a win for the economy.
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