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Alarming US Debt Ceiling Impasse

The United States encountered a potential debt default by the beginning of June this year due to the country's debt ceiling reaching its maximum limit, as said by Treasury Secretary Janet L. Yellen on Monday (5/1). The recent development has stirred up concern among investors, resulting in a decrease in the valuation of the U.S. dollar. This has subsequently prompted apprehensions regarding inflationary pressures and the potential for economic instability. The debt limit is the U.S. government's maximum limit of funds that can be borrowed to pay its bills, which includes debt interest payments. Correspondingly, congressional approval to increase the debt ceiling is needed to prevent a government shutdown, a drop in the U.S. credit score, higher borrowing costs, a global financial crisis, and further economic downturns. The U.S. debt has been growing consistently, and the pandemic has also aggravated the situation by driving up spending on relief programs. Additionally, the Congressional Budget Office collected lower tax receipts than the amount anticipated from income tax payments in April. Future tax payments are also forecasted to have a negligible impact. The Federal Reserve and Treasury Department of the U.S. have taken some actions to suppress debt defaults. One is to halt the issuance of state and Local Government Series Treasury securities to control the debt limit risks. Despite efforts to tackle the issue, those initiatives are temporary and not considered a long-term strategy to address the U.S. debt and deficit matters.