NATE MARINACCIO — Some new news has recently come out talking about the US Debt Ceiling, people losing jobs, and economic crashes, but what does this all mean? Let’s first define what the debt ceiling is. In 1917, Congress passed the Second Liberty Bond Act that created the idea of a limit established by Congress of the total value of bonds that could be issued. This was a revolutionary way to make the process of selling bonds easier. Prior to this act, Congress had to authorize each debt issued. Since then, the metaphorical debt ceiling has been raised 74 times by Congress to account for market growth as well as inflation. Despite having this system in place for more than 100 years, the United States government has never reached the ceiling as it has always been raised on time.
What would happen if the ceiling was hit, though? That would be devastating for the entire US economy. It would mean that the federal government would no longer be authorized to issue bonds and would soon run out of on-hand cash. The federal government spends millions of dollars each day to support the economy, working-class families, infrastructure, social benefits, government jobs, and other important federal programs. If this money were to run out, many of these programs would instantly lose funding, federal workers would be laid off due to lack of money to pay them, and many families in need would lose their income from the government. Loss of funds would also cause outstanding bonds to default, meaning the government would not be able to pay off previous debts. In normal operations, the federal government would use new bonds to pay off old ones. This default could crash the bond market or the entire US economy. Thankfully, the house of representatives has agreed to once again raise the ceiling, but experts say that it will only last us until December.
However, here is a quite interesting loophole that has only been used 3 times before in history. Title 31 section 5112 of US Code outlines the guidelines for minting currency. According to this section, the Treasury Secretary can legally mint a commemorative coin and assign any value to the coin. If President Biden were to authorize Yellen to mint such a coin and value it at a large number, such as 1 trillion dollars, they would be able to give it to the Federal Reserve and pay off 1 trillion dollars in debts. This would prevent the bonds from defaulting. According to many experts, this might be the best way to prevent a complete economic crash if Congress does not budge on the proposal.
If our government does not act fast, thousands of jobs could be lost, funding could be cut to essential social programs, and the economy could crash. All we can do now is hope that the people we elect to office will make the best decision for the country.
The Dutch Report 