⚠️What is US Debt Ceiling?
The US debt ceiling or in short debt is the amount of money that the country borrows to provide expenses and build infrastructure. The term debt ceiling represents the limitation of the amount of debt that a country is unable to pay its investors. Most of the time, the US debt ceiling is almost reaching its limit, yet, the government continues to raise it until 2011 when the US was downgraded to AA from a triple-A rating. This downgrade represents the risk of a country that is unable to pay back the loan, as for the US it's cited that because of political risks and rising debt burden.
❗How did the US Debt Ceiling Occur?
According to the report by Vox News, the US debt in 2021 reached nearly $29 trillion. The country was taken into debt because it needs money to spend more on wars, recession, or the pandemic Covid-19. The treasury department is the one who is responsible for managing expenses and collecting taxes. However, due to more expenses than tax, the country must decide to take more on debt or borrow from another country to meet those expenses.
✍️How does the US borrow from other countries or loans?
The US borrows money or taking on debt by issuing bonds. For example, an investor invests in a 30-years bond at a locked-in 2% interest rate. Every year the treasury of the United State send that investor $20, a part of interest-earning. And after 30 years that investor can cash out the bond and get his $1,000 back.
The question is why do people invest in a slow and low interest-rate US bond?
The answer is: "The safest in the entire investment vehicle".
Currently, 36% of the US bond manages by American & American companies. While the largest part, 40% owned by the US federal government. The last portion is owned by foreign countries and investors.
Of all the largest countries, the US debt is standing at number 4 after Italy and Greece, while Japan has the highest number of debt among all the countries in the world.
Is it bad or good when one of the largest economies, the USA faced a debt ceiling?
The answer depends on how the country with the highest debt spend on that money. There is no one answer that fits this question, but if the country that has the highest debt spends its correct ways, it can give both pros and coin. For instance, when there is a panic or emergency, of course, the US should borrow more money. However, if the economy is good and prosperous, the US should consider trying to return back their debt.
What do you think about the US Debt ceiling? Do you think in the future the US faced the problem of default? It means being unable to pay back investors. Comment your thought below and don't forget to like and share with my post.
