In June 2023, a bill that suspended the nation’s debt ceiling was passed by the legislative branch and signed into law by the President– preventing a government default that threatened economic implications for both the United States and the global economy. In this blog, we will explore the details behind the newly signed bill, the United States debt ceiling, and how these changes can impact you and your financial plan moving forward.
What is the “debt ceiling”?
Simply put, the debt ceiling is the maximum amount of money that the United States government can borrow to pay its necessary obligations. These obligations include Social Security and Medicare programs, military spending, payroll for federal employees, and interest on the national debt, among others. The current debt ceiling was reached in January of 2023 at $31.4 Trillion dollars. If the United States exceeds the debt ceiling, they could, in theory, default and fail to pay those detailed obligations.
Has the debt ceiling been an issue in the past, or is this a new development in 2023?
The debt ceiling has been a frequent topic of discussion and consternation for both major political parties. According to the Department of the Treasury, the debt ceiling has been altered or extended 78 different times since 1960. In 2011, discussions around the debt ceiling played a major role in the United States being stripped of its AAA rating by Standard & Poor’s– a rating it had held for nearly a century.
What actions did the government take to avoid a default on the US debt?
The Fiscal Responsibility Act of 2023 was passed in June by a 314-117 vote in the House of Representatives, a 63-36 vote in the Senate, and then signed into law by President Biden. Ultimately, this bill suspended the nation’s debt ceiling until 2025– limiting spending for the next two years in an effort to avoid a default. The Congressional Budget Office estimated the newly signed bill would reduce federal spending deficits by $1.5 Trillion over the next ten years, compared to normal spending had the bill not passed.
Some provisions of the bill include:
Social Security and Medicare programs remained untouched. Additionally, Biden’s student loan forgiveness program and proposed overhaul of income-driven repayment plans were unaffected.
How do the debt ceiling discussions impact my financial plan?
Ultimately, one of the best mindsets an individual investor can have is to only control the controllables. Some actionable steps that we are taking and keeping front of mind at EWA:
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