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US just hit its debt limit - so what happens to the government now?

GOP lawmakers propose balanced budget amendment as US nears debt ceiling

The US hit the debt ceiling on Thursday leading to concerns from people that the economy was headed into turmoil.

Although there have been plenty of times in history when the US either came close to hitting or hit the debt ceiling, it is still anxiety-inducing news for anyone.

With inflation and federal interest rates humming in the back of Americans’ minds, many are wondering what happens now that the debt ceiling has been hit.

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What is the debt ceiling?

The debt ceiling is the highest amount of money the federal government may borrow to pay its obligations.

These obligations include paying salaries for troops, interest on the national debt, funding social security, and more.

At the moment, the ceiling is at $31.4 trillion.

What happens when the US hits the debt ceiling?

After hitting the debt limit on Thursday, Janet Yellen, the Treasury Secretary announced to Congress it had reached its limit and the Treasury would begin using “extraordinary measures.”

These measures include “suspending some investments and exchanging different types of debts” according to New York Times.

What now?

The responsibility to either raise the debt ceiling or cease borrowing money falls on Congress.

Notoriously, Congress has a difficult time agreeing on raising the debt ceiling. Historically, Republicans will use the debt ceiling debate to leverage what they want - spending cuts.

In the past when the situation has arisen, it has created conflict between the President and Congress, often when there is a Democratic president and a Republican majority in the House. This is the current situation.

Until Congress finds a solution, the Treasury will execute its “extraordinary measures” however it could lead to the US defaulting on debt which would affect the economy.

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