The United States is quickly running out of money to pay its bills.
U.S. Treasury Secretary Janet Yellen said the country will default on its debt by early June if congress doesn’t act to raise the debt ceiling by then.
House Speaker McCarthy and President Biden appear to have reached some semblance of a deal Thursday evening, but nothing is certain.
“This is sort of like when you get that huge credit card bill at your house, and we all know you're going to pay the credit card bill, but there's often a discussion about whether we can't continue to spend this much money this way,” former Senator Roy Blunt said on Up To Date on Friday.
Blunt, a Republican, represented Missouri in the U.S. Senate from 2011 to 2023. Over his almost five decades in public office, Blunt worked regularly with political opponents, and he was in Congress when the U.S. almost defaulted in 2011 and 2013 under the Obama Administration.
Currently, the debt limit is set to $31.4 trillion, and that’s no small number, said William Keeton, a University of Missouri-Kansas City Associate Teaching Professor of Finance.
“To put that in perspective, the total gross domestic product in the country is about 26 trillion, so our outstanding debt is more than the amount of goods and services that we're producing in a year,” he told Steve Kraske.
If that happens, the negative economic effects would risk causing a deep recession.
“U.S. Treasuries have always been viewed as the ultimate safe asset in the world economy. If treasuries were no longer viewed as absolutely safe, that would be very unsettling to financial markets,” Keeton said.
If the debt ceiling isn’t raised or suspended, ordinary Americans would be the first to feel the effects, as those who receive money from the federal government. Those impacted include federal employees, veterans and retirees, who could all stop receiving checks on time.
Keeton said the U.S. has hit the debt ceiling many times, and that since 1960, the limit has been increased or suspended almost 80 times.
“It's not a new event,” he said. “What's new is this contentiousness in the debate.”
Blunt said it’s unlikely everyone will end up happy, regardless of the deal.
“At this moment, it appears that both sides have people that are unhappy with anything less than everything they want, which is almost never achieved in a democracy," he said.
However, Blunt is confident the U.S. won’t get to the point of defaulting.
“We have a big credit card bill here and we're going to pay it. I have no doubt about that. But it's a significant moment to talk about how long we can sustain this level of spending,” Blunt said.
- Roy Blunt, U.S. Senator for Missouri from 2011 to 2023
- William Keeton, Associate Teaching Professor of Finance at UMKC
