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Analyst Pin-board US: Debt ceiling and impact on markets

The clock is ticking for the United States congress to reach a deal to raise the federal borrowing limit, or , before the government runs out of money to pay its bills sometimes over the next three months. The ceiling was suspended in 2019 and was reinstated automatically at the beginning of August 2021.

Talking about debt is a sensitive subject. The way it is measured, what it is about has been documented in various ways by economists, politicians, market observers and so-called ‘average people’. However, there is a standard definition of how it is perceived by most people paying taxes: too much debt is not good.

The debt ceiling is one thing that sets the US apart from most other countries. Ordinarily when a country outlines its spending plans and it is approved, the government can simply borrow what it needs. In the US there is an extra hoop to go through whereby if the level of accumulated debt were to go over a set level – the debt ceiling – congress needs to approve this by raising the debt ceiling level to a new higher figure. Since its inception in 1917, the debt ceiling has been raised well over 100 times, mostly without incident. However, recent years have seen bi-partisan politics in Washington take over the issue as a tool to obstruct legislation and score political points while often disguised as an effort to instill fiscal discipline.