What you need to know about the debt ceiling as the deadline looms (2023)

FAQs

What is the deadline to raise the debt ceiling? ›

When is the deadline for raising the debt ceiling? Treasury Secretary Janet Yellen has said that the U.S. government could become unable to pay all of its bills on time as soon as June 1 if Congress doesn't first raise the debt limit.

Clause 4 of the 14th Amendment states that the “validity of the public debt of the United States … shall not be questioned”. By invoking this provision, Biden could order the US Treasury to keep issuing bonds and keep paying the government's bills.

Individuals and businesses would have trouble getting loans, and Zillow estimates that a prolonged government default would push mortgage rates up to about 8.4% from the 6.4% interest rate on a 30-year fixed-rate mortgage that we see today, per Freddie Mac.

The debt ceiling is the amount of money the U.S. is authorized to borrow to pay its bills. The U.S. runs a budget deficit, meaning its revenue isn't enough to cover spending. The government borrows money to make up the difference. Congress regularly suspends or raises the debt limit so the U.S. can borrow more.

There's just a 2% possibility the U.S. government will default on its loans, according to analysts at Deutsche Bank, despite days of stalled-out negotiations.

So if the U.S. cannot pay its creditors, interest rates on U.S. debt would go up, creating a cascade of higher interest rates. So mortgage rates, credit card rates, car loan rates. All would become more expensive. Finally, there is a real concern about the economy — that a default could spark a recession.

Potential repercussions of reaching the ceiling include a downgrade by credit rating agencies, increased borrowing costs for businesses and homeowners alike, and a dropoff in consumer confidence that could shock the United States' financial market and tip its economy—and the world's—into immediate recession.

Section 4 Public Debt

But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.

No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.

In modern history, the U.S. has never defaulted on its debt. The debt ceiling is the self-imposed limit on how much debt Congress allows the federal government to have. If Congress does not raise or suspend the debt ceiling, the U.S. could default on its debt, which would also impact financial markets and the economy.

Does debt go away after 7 years in USA? ›

A debt doesn't generally expire or disappear until its paid, but in many states, there may be a time limit on how long creditors or debt collectors can use legal action to collect a debt.

That means tamping down on excess spending, making a budget, and shoring up emergency savings to cover at least three months of living expenses. Since a debt default would likely send interest rates soaring, any credit card debt you're saddled with may soon cost you more.

Domestic Holders of Federal Debt

The Federal Reserve, which purchases and sells Treasury securities as a means to influence federal interest rates and the nation's money supply, is the largest holder of such debt.

The federal government borrows money from the public by issuing securities—bills, notes, and bonds—through the Treasury. Treasury securities are attractive to investors because they are: Backed by the full faith and credit of the United States government. Offered in a wide range of maturities.

America's debt has risen massively since the beginning of the 21st century, as "politicians from both parties have made a habit of borrowing money to finance wars, tax cuts, expanded federal spending, care for baby boomers, and emergency measures to help the nation endure two debilitating recessions," writes Jim ...

Many people believe that much of the U.S. national debt is owed to foreign countries like China and Japan, but the truth is that most of it is owed to Social Security and pension funds right here in the U.S.

Falling behind on payments or missing payments, though, can lead to what's called mortgage default. Once this happens, your house can go into foreclosure, and you may lose your home altogether.

Nearly all of that debt – about $31.38 trillion – is subject to the statutory debt limit, leaving just $25 million in unused borrowing capacity. For several years, the nation's debt has been bigger than its gross domestic product, which was $26.13 trillion in the fourth quarter of 2022.

The stock market will certainly take a hit if the U.S. defaults on its debt. At moments, the losses could seem significant to anyone with investments or retirement accounts. But for those with diversified portfolios who aren't nearing retirement, investment experts advise that you stay the course.

Which country has defaulted the most? ›

Spain holds the dubious record for defaults, having done so six times with the last occurrence in the 1870s. Greece has defaulted five times since achieving independence in the 1820s, or half its modern history. But not since then.

The deficit is projected to fall to $1,154 billion billion in 2023, and debt held by the public is projected to grow to $26,033 billion, but fall as a percent of GDP, to 101.8 percent. After 2023, the deficit is projected to roughly stabilize at around 5 percent as a percent of GDP.

If the debt ceiling binds, and the U.S. Treasury does not have the ability to pay its obligations, the negative economic effects would quickly mount and risk triggering a deep recession. The economic effects of such an unprecedented event would surely be negative.

14th Amendment - Citizenship Rights, Equal Protection, Apportionment, Civil War Debt. Constitution Center.

Congress has maintained some form of a debt limit, without constitutional controversy, since the dawn of the republic. According to widely held legal principles, its existence creates no conflict with the Constitution, and the Supreme Court would almost certainly reject any attempt to argue otherwise.

Fourteenth Amendment, Section 4: The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.

No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.

A violation of due process is anything that includes depriving a person of “life, liberty, or property, without due process of law." An example of such a violation would be law enforcement searching an individual's property without a warrant.

Passed by the Senate on June 8, 1866, and ratified two years later, on July 9, 1868, the Fourteenth Amendment granted citizenship to all persons "born or naturalized in the United States," including formerly enslaved people, and provided all citizens with “equal protection under the laws,” extending the provisions of ...

As a result, the U.S. actually did become debt free, for the first and only time, at the beginning of 1835 and stayed that way until 1837. It remains the only time that a major country was without debt. Jackson and his followers believed that freedom from debt was the linchpin in establishing a free republic.

What happens if you don't pay your debt in America? ›

If you stop making your required payments on general consumer debts (like a line of credit, overdraft or credit card), your creditors will generally charge you a fee for defaulting on (missing) payments and start reporting those defaults on your credit history.

Which countries hold the most US debt? Over the past 20 years, Japan and China have owned more US Treasuries than any other foreign nation. Between 2000 and 2022, Japan grew from owning $534 billion to just over $1 trillion, while China's ownership grew from $101 billion to $855 billion.

If you are struggling with debt and debt collectors, Farmer & Morris Law, PLLC can help. As soon as you use the 11-word phrase “please cease and desist all calls and contact with me immediately” to stop the harassment, call us for a free consultation about what you can do to resolve your debt problems for good.

Credit cards are another example of a type of debt that generally doesn't have forgiveness options. Credit card debt forgiveness is unlikely as credit card issuers tend to expect you to repay the money you borrow, and if you don't repay that money, your debt can end up in collections.

If a debt collector has a court judgment, then it may be able to garnish your bank account or wages. Certain debts owed to the government may also result in garnishment, even without a judgment.

It is possible to negotiate directly with creditors and settle your debt for less than you owe, but you may want the help of a professional. A quick counseling session from a certified credit counselor can help you discover your options and choose the right path forward.

Overall, foreign countries each make up a relatively small proportion of U.S. debt-holders. Although China's holdings have represented just under 20 percent of foreign-owned U.S. debt in the past several years, this percentage only comprises between 5 and 7 percent of total U.S. debt.

Which country has no debt? ›

U.S. debt to China comes in the form of U.S. Treasuries, largely due to their safety and stability. Although there are worries about China selling off U.S. debt, which would hamper economic growth, doing so in large amounts poses risks for China as well, making it unlikely to happen.

So if the U.S. cannot pay its creditors, interest rates on U.S. debt would go up, creating a cascade of higher interest rates. So mortgage rates, credit card rates, car loan rates. All would become more expensive. Finally, there is a real concern about the economy — that a default could spark a recession.

The US owes so much money to China because of the large trade and investment deficit the US currently has with China. This deficit is the result of a combination of factors, including rising wages and technology costs in the US, slow growth in the US economy, and US policies that favor the import of goods from China.

The average U.S. household has $6,473 in credit card debt

Many Americans use credit cards to pay for purchases, and it turns out many have outstanding account balances. According to data from Experian, the average American's credit card balance in the third quarter of 2021 was $5,221.

Early history

In 1917, during World War I, Congress created the debt ceiling with the Second Liberty Bond Act of 1917, which allowed the Treasury to issue bonds and take on other debt without specific Congressional approval, as long as the total debt fell under the statutory debt ceiling.

The debt-ceiling standoff has renewed debate over the Constitution's 14th Amendment. Some lawyers argue it lets President Biden unilaterally pay the nation's debts without heeding Republicans' demands; others say that idea fundamentally misreads the Constitution.

The 14th Amendment of the United States Constitution states that "the validity of the public debt of the United States...shall not be questioned." Many scholars argue that this clause means that it is unconstitutional for the United States to default on its debt.

Section 4 of the Fourteenth Amendment renders all public debt accumulated by Congress to be legitimate, and determined that the state and federal governments are under no obligation to compensate for the lost financial value of the freed slaves or the Confederacy's war debts.

Who owns US debt? ›

Investors in Japan and China hold significant shares of U.S. public debt. Together, as of September 2022, they accounted for nearly $2 trillion, or about 8 percent of DHBP. While China's holdings of U.S. debt have declined over the past decade, Japan has slightly increased their purchases of U.S. Treasury securities.

The debt ceiling refers to a law that caps the total amount of federal debt allowed to be outstanding. The U.S. hit that limit in January, but the Treasury Department says it has been using workarounds, or what it calls “extraordinary measures,” to keep the government paying its bills on time.

In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise re-examined in any Court of the United States, than according to the rules of the common law.

No Soldier shall, in time of peace be quartered in any house, without the consent of the Owner, nor in time of war, but in a manner to be prescribed by law.

The new electoral process was first used for the 1804 election. Each presidential election since has been conducted under the terms of the Twelfth Amendment. The Twelfth Amendment stipulates that each elector must cast distinct votes for president and vice president, instead of two votes for president.

The US government owes trillions of dollars in debt to foreign entities, including governments, central banks, companies, and individual investors. This debt includes US Treasury bonds and other securities, which are popular as they are considered safe investments.

Fourteenth Amendment, Section 4: The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.

The Sixth Amendment guarantees criminal defendants nine different rights, including the right to a speedy and public trial by an impartial jury consisting of jurors from the state and district in which the crime was alleged to have been committed.

14th Amendment - Citizenship Rights, Equal Protection, Apportionment, Civil War Debt.