Is line of credit good for anything?
Few counties in the world have debt limit laws and Washington’s periodic lifting of borrowing limits allows Congress to pay for spending already authorized.
Treasury Secretary Janet Yellen and other policy experts have called on Washington to eliminate the cap, as it amounts to a bureaucratic stamp on decisions that have already been made.
Some analysts have proposed that the Treasury could head off the crisis by minting the multitrillion-dollar platinum coin and putting it into the government’s account, an idea widely seen as a bizarre gimmick. Others argue that the debt cap itself violates the US Constitution. But if the Biden administration invoked that argument, a legal challenge would follow.
The debt limit is supported by Democratic and Republican lawmakers alike and both have used it as leverage when their party does not control the White House. This doesn’t seem likely to end anytime soon.
What happens when Washington can no longer borrow money?
Shockwaves will ripple through global financial markets as investors question the value of US bonds, which are seen as the safest investments and serve as the building blocks for the world’s financial system.
If the government were forced to pay on things like soldiers’ pay or Social Security benefits for the elderly, the US economy would almost certainly be hit by a recession. Economists expect millions of Americans to lose their jobs. Investors are already worried and are demanding higher yields for some US debt securities that come in close to expected performance.