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The Debt-Ceiling Crisis: Why It Matters to Millennials

The Debt-Ceiling Crisis: Why It Matters to Millennials

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The debt-ceiling debate is the most important issue our government faces today, and the debate is particularly important for Millennials. This issue brief explains what it is, what needs to be done, and what this all means for young Americans.
The debt-ceiling debate is the most important issue our government faces today, and the debate is particularly important for Millennials. This issue brief explains what it is, what needs to be done, and what this all means for young Americans.

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Published by: Center for American Progress on Oct 09, 2013
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1Center or American Progress |  The Debt-Ceiling Crisis
Over he pas ew weeks, here has been a lo o alk abou deb ceilings, shudowns,decis, and scal policy. Te deb ceiling, in paricular, is a very complex issue wih alo o nancial jargon, bu he oucome o he curren deb-ceiling debae is absoluely criical o he economic well-being o Americans, noably Millennials.Tis issue brie ranslaes ha nancial jargon o break down he basics o he deb-ceil-ing debae and is impac on young Americans.
What is the debt ceiling?
Te U.S. ederal governmen, or mos o American hisory, has spen more money hani akes in. o make up he dierence beween wha he governmen spends and collecsin revenues, i akes on deb—ha is, borrows money.Te deb ceiling represens he legal limi on he oal amoun o deb he govern-men can incur. Beore he deb ceiling, Congress approved each piece o deb hahe reasury could issue. Te deb ceiling was creaed during World War I o allow heexecuive branch exibiliy in managing is nances and o allow Congress o ocus onlegislaion concerning he war.Denmark is he only oher counry ha has a deb ceiling and recenly raised is deblimi incredibly high so ha he governmen has ample auhoriy o borrow.
Why do we need to raise the debt ceiling?
I he Unied Saes reaches is borrowing limi, Congress mus raise he deb ceilingso ha he Deparmen o he reasury—asked wih he job o borrowing and payingo deb—can coninue borrowing. Te governmen borrows by selling reasury billsand bonds, also known as reasuries, o invesors. Te ineres raes on reasuries
 The Debt-Ceiling Crisis
Why It Matters to Millennials
Gurwin Ahuja October 10, 2013
2Center or American Progress |  The Debt-Ceiling Crisis
reec heir riskiness o invesors. I hey are perceived o be very risky, he ineresraes will be high; i hey are perceived o be sae, heir ineres raes will be lower.reasuries are widely viewed as he saes invesmen in he world; hus, ineres raesor reasuries are very low. A criical poin o noe: Raising he deb ceiling does no mean he governmen will spendmore, and no raising he deb ceiling does no mean he governmen will spend less.Raising he deb ceiling simply gives Congress he auhoriy o pay or previous spending.I Congress does no raise he deb ceiling, he governmen will no be able o pay is billson ime, and he Unied Saes will deaul on is obligaions, orcing Congress o sop key programs such as suden loans and job raining. A deaul will cause invesors o lose aihin he governmen and demand higher raes on reasury bonds, creaing economic chaos.Congress has never ailed o increase he deb ceiling since is creaion in 1917. o doso would be nancially irresponsible. As Federal Reserve Chairman Ben Bernankedescribed i, no raising he deb ceiling is “like a amily saying, ‘Well, we’re spendingoo much—le’s sop paying our credi card bill.’”
Why would we want to raise the debt ceiling if we already have a bigdebt crisis?
Once again, he deb ceiling does no aec wheher he governmen will spend moreor less; i jus gives Congress he auhoriy o pay or spending o which i has already commited o pay. As ar as he deb crisis, he amoun he Unied Saes borrows hasacually sabilized. A common measure economiss use o see i a counry has he abiliy o pay back isdebs is he deb-o-GDP raio. Te higher a counry’s deb-o-GDP raio is, he lesslikely i is ha he counry will pay back is deb. Te Unied Saes’ deb-o-GDP raio,however, is projeced o decrease over he nex 10 years.
What happens if we do not raise the debt ceiling?
I Congress ails o raise he deb ceiling, i is very possible ha he Unied Saescould ener anoher recession—poenially a depression. Te governmen acually reached he deb ceiling on May 19,
bu he reasury Deparmen has been using“exraordinary measures”—basically aking cash rom oher places, such as ederalemployee pensions—ha allow he ederal governmen o pay he bills. On Ocober17, he reasury’s “exraordinary measures” will be exhaused, and Congress will needo raise he deb ceiling.
3Center or American Progress |  The Debt-Ceiling Crisis
No raising he deb ceiling and orcing a deaul would have exreme consequences.Te global nancial sysem relies on U.S. deb—ha is, reasuries—o be he saesin he world. Tus, he borrowing rae on reasuries is inerwined wih he globaleconomy in myriad ways. A he mos basic level, his borrowing rae is used as a benchmark or ineres raes on common nancial producs in he Unied Saes suchas morgages and auo loans. A spike in ineres raes on reasury bonds because o a deaul would limi businessesand consumers rom borrowing and could raise heir curren borrowing coss. A deaulcould also cause reiremen accouns ha hold a signican amoun o reasuries ocollapse, and i would be more cosly or he governmen o pay down is deb.
Wha’smore, a deaul would orce he Unied Saes o immediaely make drasic cus in crucialgovernmen programs, which could delay or sop paymens o people who receive SocialSecuriy, Medicare, Medicaid, and veerans’ benes.Even he hrea o deaul deeply harms he economy. During he deb-ceiling debae in2011, consumer condence anked, he Dow Jones Indusrial Average ell 2,000 poins,and he Unied Saes los is perec credi raing or he rs ime in hisory.
Accordingo Larry Summers, ormer reasury secreary and Disinguished Senior Fellow a heCener or American Progress, an acual deaul would lead o “a cascade ha makesLehman Brohers look like a very small even.”
 Former Presiden Ronald Reagan said i bes when discussing he impac o breachinghe deb ceiling: “Te ull consequence o a deaul—or even he serious prospec o deaul—by he Unied Saes are impossible o predic and awesome o conemplae.”
How did we get to this point?
In 2011, House Republicans used voing agains he deb ceiling as a bargaining chipo reduce governmen spending, which led o he damaging sequeser cus we haveoday. oday, one acion o he Republican Pary in he House o Represenaivesis jeopardizing he credi o he Unied Saes unless heir long lis o parisan policy demands is me. Tis lis includes delaying he Aordable Care Ac, also knownas Obamacare; guting environmenal regulaions, and overhauling he ax code.
 Presiden Barack Obama has made i clear ha he will no negoiae on jeopardizinghe ull aih and credi o he Unied Saes.

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