Government

Will America “Run Out of Money” by October 18th?


TL;DR (4-minute read)

  1. Running out of money means that the US has put a limit on its own debt and it cannot take out any more loans to use.
  2. This isn’t a threat as long as it is addressed quickly.
  3. If it is left unaddressed, it can be extremely dangerous to global trade, international economies, and the domestic economy will be practically brought to its knees.

A 2013 BBC News graph representing debt ceilings and debt defaults (BBC news, Whitehouse.gov)

Main Ideas:

  • What Does “Running Out of Money” Mean in This Context?
  • Is This a Real Danger or Possibility?
  • What Will Happen if the U.S. Defaults on its Debt?

Fairly recently, there has been talk of the United States “running out of money” by October 18th, often accompanied by frantic and fearful comments on the situation— but is it really that big of a deal?

What Does “Running Out of Money” Mean in This Context?

The October 18th deadline is not merely speculative, but it is not a clearcut deadline either. October 18th is a prediction of a deadline for a change to the debt ceiling limit, but what is the debt ceiling? It is a limit that is set by the government that restricts national debt to under a certain number. Unfortunately for the U.S, that number seems to be approaching rapidly. According to Treasury Secretary Janet Yellen, that number will be reached by October 18th. So, why are people saying the government is “running out of” money? Well, once the debt ceiling is reached, the government can no longer borrow any more money; thus, they cannot pay for anything and either assets must be liquidated or some kind of solution must be figured out— otherwise, systems that rely on government spending will be crippled.

Treasury Secretary Janet Yellen appearing before the House’s Financial Service Committee to discuss the debt limit (NY Times, Pool Photo by Al Drago)

Is This a Real Danger or Possibility?

All things considered, this is most likely not a real danger for the American people as long as things go as expected. The US government most likely will increase the debt limit by the time that they are in dire need for loans from other countries. Moreover, Janet Yellen’s prediction is based on varying statistics of government daily expenditures, which can be quite unpredictable. However, if government expenditures change or other extraneous factors come into play, the debt ceiling may be reached far quicker than expected and the government may be caught in a dangerous, sticky situation. So far, current President Joe Biden has pleaded with congress to vote quickly on the debt limit to raise it, but he has been met by some resistance from Republicans. To that, he says that they should “stop playing Russian Roulette with the U.S. economy.” However, fortunately for the Democrats, Republican Senator Mitch McConnell has offered a short term debt ceiling suspension until a more suitable, permanent solution can be put into place.

POTUS Joe Biden addresses the US in the White House (Reuters/Jonathan Ernst, Oct. 4, 2021).

What Will Happen if the U.S. Defaults on its Debt?

The specifics are not clear as to what exactly will happen if the US defaults on its debt— in fact, the US has never defaulted on its debt ever before. Congress had avoided a similar situation in 2011 by quickly raising the debt ceiling by almost 2.5 trillion dollars— but what will happen now? A real US debt default could trigger an international recession (as other economies are inextricably tied to the US through trade and other political partnerships), and what could be seen as the next depression, as job losses and debt payment prices skyrocket. Wages of federal employees may not be paid and thus millions of families would be affected drastically. An estimated 6 million jobs and 15 trillion dollars in private wealth could be gone in a flash (USA Today). Government income from taxes could be used, but that would run out eventually as well. Recovery would be brutal, painful, and unbearably long. All in all, what happens if the government defaults on debt is not something that Americans— or anybody, for that matter— want to witness first hand. 

Sources:

https://www.bloomberg.com/news/articles/2021-09-28/yellen-warns-u-s-treasury-to-run-out-of-cash-around-oct-18

https://www.cnn.com/2021/09/28/economy/debt-ceiling-deadline-yellen/index.html

https://www.nytimes.com/2021/10/06/business/debt-ceiling-social-security-medicare.html

https://www.usatoday.com/videos/news/politics/2021/10/06/what-would-happen-if-us-defaulted-its-debt/6026014001/

https://www.usatoday.com/videos/news/politics/2021/10/04/biden-calls-senate-raise-debt-limit/5992127001/

https://www.cnbc.com/2021/10/06/mitch-mcconnell-may-offer-short-term-debt-ceiling-extension-following-pressure-from-biden.html

Featured image: USA Today

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