The U.S. debt ceiling has resurfaced, with incoming President Trump demanding the direct elimination of the debt ceiling, but this was rejected by the House of Representatives. Musk and Vivek Ramaswamy from the Department of Efficiency oppose the current proposal to extend government funding until March put forth by the House and Senate. Friday is the deadline to avoid a government shutdown. Will the U.S. be able to resolve the crisis smoothly this time?
What is the debt ceiling?
As the name suggests, the debt ceiling is the limit on borrowing by the U.S. government, first established by Congress in 1917. As legislators continuously pass bills, the spending exceeds government revenue, forcing the Treasury to borrow more and more, thus driving up the debt. When the debt approaches the ceiling, the Treasury will take so-called extraordinary measures—essentially accounting tricks that have been used repeatedly for decades—to ensure that its cash buffer does not run out completely. These measures include suspending the reinvestment of Treasury bonds held by various government funds (including the government employee retirement fund). In severe cases, this could lead to a federal government shutdown due to an inability to pay salaries.
Since 1981, the U.S. federal government has experienced 14 shutdowns, most lasting only a day or two. The most recent and longest lasted 35 days due to security disputes at the U.S.-Mexico border, beginning in December 2018.
Why does Trump want to eliminate the debt ceiling?
The U.S. Congress temporarily suspended the ceiling in June 2023 until early 2025, just as Trump is about to take office and face this headache.
According to Bloomberg, Trump's top fiscal priority next year will be to extend the personal income tax cuts he enacted in 2017, which are set to expire at the end of 2025, and reducing tax revenue will create an increasing debt burden.
Traditionally, many Republicans are unwilling to vote in favor of raising the debt ceiling, believing it is incompatible with controlling budget deficits. Trump's idea has indeed immediately gained the support of an otherwise unlikely supporter: progressive Democratic Senator Elizabeth Warren, who posted on X on December 19, stating that the debt ceiling is equivalent to political 'hostage-taking.'
Senior House Democrat Brendan Boyle previously proposed legislation authorizing the Treasury Secretary to unilaterally raise the ceiling while retaining Congress's power to vote to disapprove this measure. Outgoing Treasury Secretary Janet Yellen stated during a 2022 hearing that she 'strongly' supports such proposals, saying, 'It is crazy to regularly face a debt ceiling crisis!'
Musk is also stirring the pot.
Faced with this deadlock, Congress may need to consider legislation regarding the debt ceiling or delay it until the Treasury begins to exhaust cash and takes extraordinary measures. Currently, the House and Senate have agreed to extend government funding until March, but the agreement includes about $29 billion for disaster relief funds, over $30 billion for agricultural programs, and billions for various other disaster-related expenditures, angering incoming Department of Efficiency leaders Musk and Vivek Ramaswamy.
Musk posted on his social platform X, pointing out:
The more I understand, the more it becomes clear that this spending bill is a crime. A government shutdown 'is much better than passing a terrible bill.'
Friday is the deadline to avoid a government shutdown. House Speaker Mike Johnson, who is pushing this plan, stated that he has been texting Musk and Ramaswamy to explain the background.
The past debt ceiling has also raised warnings from credit rating agencies, which believe these events damage the fiscal reputation of the United States. Fitch Ratings lowered the U.S. rating by one step to AA+ during its last review of this issue, even after the ceiling was suspended.
Trump favors completely eliminating the debt ceiling.
Trump insists on requiring Republican leaders to add a clause to exempt or raise the federal debt limit before he takes office. However, it has been rejected by the House.
Trump told NBC News that completely eliminating the debt ceiling would be the 'smartest thing' legislators could do, stating, 'I fully support this!'
This article, 'The U.S. Faces a Debt Ceiling Crisis, Government Shutdown Looms, Trump Demands Immediate Elimination of the Debt Ceiling,' first appeared in Chain News ABMedia.
