Last week, all eyes were on the U.S. Senate as Capitol Hill struggled with chaos over raising the debt ceiling. This week, it’s the U.S. House of Representatives.
On Tuesday, the House voted to raise the debt ceiling by $480 billion and sent the bill to President Biden for his sign-off. With that, House officials also set themselves up for another tug of war over how much the nation can borrow to keep the proverbial lights on, people employed, and mortgage rates reasonable.
Biden had already warned Congress that there would be dire consequences if it didn’t raise the debt ceiling, saying the U.S. would face "a self-inflicted wound that takes our economy over a cliff.”
The legislation the House passed gives the government some breathing space, but not much. The new bill allows the U.S. to pay its bills through early December. At that juncture, we can expect another -- and far more critical -- round in this match. Senate majority leader Mitch McConnell (R-Ky.) has already said Republicans will not sign off on future legislation to avoid a government default.
Think of the debt ceiling like it's a limit on a credit card
Not only does the possibility of an economic default raise potential issues for the country as a whole, but it also hits Americans where it can hurt the most -- in the pocketbook.
If a default triggers a global recession, as Treasury Department officials think it might, things like 401(k)s and other investments would likely take a tumble. So could Social Security, Medicare, military salaries, and tax refunds -- essentially any form of income that comes from the federal government.
Sarah Foster of Bankrate says consumers can wrap their heads more easily around this situation if they think of the debt ceiling as if it were the credit limit on a credit card. However, unlike what happens when you use up your credit card’s “debt ceiling,” Congress isn’t cut off from spending once it reaches that limit. “Lawmakers can keep committing to new spending, after which the debt ceiling isn’t automatically raised,” Foster said.
“It has failed miserably,” says Mark Hamrick, Bankrate senior economic analyst and Washington bureau chief, referring to the debt ceiling. “It is akin to having me promise to pay you dollars, and then raise the threat of failing — or fail — to make good on that without funds.”