The US is running out of cash!

The U.S. government could run out of money and default on its $31 trillion debt as early as June 1.

Here’s what you need to know!

How big is the US Debt?

The US debt started growing significantly in the 1980s after Ronald Reagan's large tax cuts, as reduced tax revenue led to increased borrowing for government spending.

In the 2000s, the dotcom bubble burst and the US engaged in military campaigns in Iraq and Afghanistan, leading to a recession and further tax cuts, resulting in increased debt.

The 2008 Great Recession required increased government spending for bank bailouts and social services, followed by a major tax cut under Donald Trump. The debt continued to rise, and the pandemic prompted additional stimulus bills, further increasing the debt.

Currently, America’s total debt is roughly around $31.4 trillion.

What is the debt ceiling?

The debt ceiling, currently set at $31.4 trillion, is a restriction imposed by Congress on the amount of outstanding national debt that the federal government can have.

It has been raised 78 times since 1960.

What if the debt ceiling is reached?

Once the debt ceiling is reached, the government cannot increase its debt, leading to potential difficulties in paying bills and funding programs.

To temporarily continue borrowing, the Treasury can use extraordinary measures authorized by Congress, allowing it to fund programs or services for a limited time after reaching the debt ceiling.

Why is the debt ceiling not raised?

Republicans in the House passed a bill on April 26 to raise the debt ceiling by $1.5 trillion but required $4.8 trillion in spending cuts over ten years.

Democrats have refused to negotiate spending cuts specifically tied to the debt ceiling, arguing that such discussions should take place during budget negotiations.

Republicans are using the approaching default deadline to force Democrats into accepting spending cuts, a strategy that worked in 2011.

The current deadlock between the parties raises the risk of economic disaster for the United States.

What happens if the US defaults?

Defaulting on U.S. sovereign debt would surely have severe consequences for the US economy, which would have damaging effects on economies all around the world.

A default could lead to a 4% drop in GDP and more than 7 million workers could lose their jobs in America.

U.S. bond ratings would be downgraded. This default could lead to $750 billion in higher federal borrowing costs.

The U.S.'s international reputation and position could be undermined, with Russia and China capitalizing on the potential chaos and portraying the U.S. as incapable of functioning as a democracy.

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