If Congress doesn’t raise the debt ceiling, the US government won’t be able to pay its bills in October. The debt ceiling is the limit that Congress places on the amount Treasury can borrow.
The debt ceiling has been increased 78 times since 1960. The ceiling was also raised three times during Donald Trump’s presidency. In a budget agreement, in 2019, the Democrats also agreed to suspend the ceiling for a period of two years. The suspension was lifted in July and the Treasury has taken “extraordinary measures” to preserve cash since then. This includes suspending investments in certain federal retirement and disability funds.
Janet Yellen (the Treasury Secretary) has warned since that failure to raise the ceiling will lead to “economic disaster,” with soldiers and pensioners possibly going unpaid.
The potential long-term effects of defaulting on Treasury securities could prove to be even more damaging, as the dollar is the reserve currency of the world and much of the global financial infrastructure is built on the assumption Treasuries are safe. Standard & Poor’s gave America its AAA rating last time it flirted with default.
Democrats will introduce a bill that would lift the debt ceiling, increase government funding until December, and provide relief for recent natural disasters. While the Senate Republicans have said they won’t approve an increase, Democrats are keen to test this resolve.
Democrats think Republicans will give in to pressure and avoid a government shutdown and default, and they believe they might be able pick up some votes from Republicans who represent states affected by hurricanes.
Republicans want Democrats vote on the bill by a party-line vote. This would paint Democrats as the party of reckless spending.
We can expect an increase in interest in silver and gold as we approach October.
America’s debt ceiling: What happens to it if Congress fails? CMI Gold & Silver.