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Why the America is hitting the new debt ceiling?

(A, B, C , D) or (AAA, AA , A | BBB, BB, B | CCC, CC , C ) 


These grades aren't for students. They're for businesses based on how likely the company is to pay its debts back. A company like Microsoft has the best grade possible AAA since they have a long history of paying people on time. The Internet is about driving profitability, but a newer company like Tesla has a BB rating. Fundamentally change the equation. You've got to have an all electric vehicle and that affects their interest rates.

Microsoft pays its investors 2.5% interest. Tesla pays a bit more at 5.3%. The riskier the grade, the higher the interest rate. But it's not just companies that have grades. Countries do too. the United States for really long time had a AAA rating until lawmakers have just two more days to raise the nation's debt ceiling.   the US has a weird thing called the debt ceiling, which is just a limit on how much debt the country can take on. If the national debt reaches that limit, the US might not be able to pay its investors. the US regularly comes close to hitting it, but the government always ends up raising it until 2011 when it almost didn't. After that the US was downgraded for the first time due to quote political risk.

Since then, Congress and the President have had to raise it seven more times. It's becoming an almost annual task, and of course it always goes super swell. The entire basis of the Republican strategy is we're going to shut down the government or cause economic chaos if we don't get 100% of what we want.  In the last 20 years, the US has borrowed more and more money. The national debt is that an all time high. But how should we feel about this debt? And what happens if we don't pay it back?

The US national debt is nearing $29 trillion, with a capital T depending on when you watch this, it might already be there. It's best not to look at it as a number, but instead as a comparison to the size of the economy. You'll see the US takes on more debt when the country spends a lot because of wars or because of investments needed during recessions and now pandemics.

And the department in charge of all this is the US Treasury. They collect taxes and spend them to fund the government and for the record, it's Congress and the president who decide how much taxes should be and where the money should be spent. The Treasury just handles the flow of money, but for essentially ever they approve more spending than they bring in with taxes. So the Treasury has to make up that difference by taking on debt. And it does that by selling bonds.

They can vary, but generally it works like this. You buy $1000.30 year bond at a locked in 2% interest rate every year. The Treasury sends you $20.00. The 2% interest you've earned and after 30 years you can cash out the bond and get your $1000 back.

It's a win win situation. the US gets money to fund the government and you make some profit on a safe investment. More than 1/3 of these bonds, and therefore the total U.S. debt, are owned by Americans and American companies, investors and also banks, local governments and even pension funds keep their money in bonds. And the largest part is owned by the federal government. The yes the federal government owns part of the federal government's debt. The money for Social Security is actually kept in bonds. So is the money for Medicare and federal pensions. The Federal Reserve has bonds too.

Foreign investors only own 1/4 of the US debt, and while Chinese investors used to have the largest share, Japanese investors actually own more. Now they own around 4% of all U.S. debt, and it is a lot of debt. Of all the developed countries, the US has the 4th largest debt compared to the size of the economy.

So is this bad?     While all countries take on debt, only these two have debt ceilings. Denmarks, however, is kept so high they're not going to come close to hitting it, unlike the United States where the government is constantly having to raise the debt ceiling to pay for spending they already approved. That's the big problem with the debt limit is it's internally contradictory. The government passes a law that says you have to spend 10. It passes a law saying you can only collect 8IN taxes and then it passes another law saying you're not allowed to borrow.   If the US does hit the debt ceiling, it would mean the Treasury couldn't issue anymore bonds, so no more debt revenue taxes would still be coming in. But that's not enough to cover all these responsibilities, so maybe they stop paying federal employees or stop spending money for programs. But at some point they won't be able to pay the interest to these investors or cash out Social Security bonds. That's called a default. It's never happened yet. You couldn't do more to sabotage your financial system than default. Interest rates could rise based on a reassessment that the United States was considerably riskier than people had thought before. When government bond interest rates go up. That that usually means that other interest rates are going up.

If you borrow for anything, whether it's for a dishwasher or a car or college or your credit card, that's going to become more costly. We're going to lose jobs. Wages won't go up as high. We could be like these countries and just not have a debt limit or have one so high. It's never a threat to the economy, because if Congress and the president really want to take on less debt, they can change the tax system or reduce spending. 

    The debt limit does make sense if you are a functioning Congress. You're saying we need to put in place some policy to make sure that we don't borrow more than we mean to or we stop and we pause and we check on the borrowing. That certainly isn't how it is working. The simplest thing would just be to repeal it would be like almost every other country in the world, even if the US never actually defaults on its debt, just the mere political fights. And will they or won't they? Unease could make the United States a less desirable place to invest. It's long been seen as this kind of the safest asset, or that you can invest in and so that's given the US. A lot of advantages, but the more our political system is, so polarized and dysfunctional, the more that it becomes. A little bit question of whether the US should have the incredible advantage that it has thus far.


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