Fact Check | Has the United States run out of money before?

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Our government will potentially run out of money in the coming days. The GOP and Dems are trading disputes in Congress over which party is bound to raise America’s borrowing cap. Thus far, Republicans have declined to contribute votes to support lifting the existing limit.

Onlooking civilians may believe we are left to the whims of lawmakers who do not seem rattled by the end of the federal government’s fiscal year. With objecting perspectives and continuous broadcast, it is crucial that everyday people comprehend what is happening in real-time. Firstly, the nation’s debt ceiling — or debt limit — is a cap that the federal government will approve via the Treasury Department’s financial sum borrowed to satisfy its obligations.

United States Secretary of Treasury Janet Yellen issued a letter to the House Speaker on Sept. 28. A comment within the mentioned memo is as follows:

“We now estimate that Treasury is likely to exhaust its extraordinary measures if Congress has not acted to raise or suspend the debt limit by October 18. At that point, we expect Treasury would be left with very limited resources that would be depleted quickly. It is uncertain whether we could continue to meet all the nation’s commitments after that date.”

Claim: Has the United States run out of money before?

Rating: False.

Our country’s government has never gone into default before. And that potential default is the inability to reimburse the designated debt. Since its 1917 creation, the aforementioned debt ceiling has either shifted or been suspended by Congress. So, to many politicians, the debt limit is simply a lawmaker-made obstacle. Also, those who wish to see the evolution of the debt ceiling can. The Bipartisan Policy Center has documented its fluctuation — from The Second Liberty Bond Act of 1917 to the 2021 debt limit being reinstated at $28.4 trillion on Aug. 1.

While noncombatants stand by to see if America will dodge defaulting for the first time in history, it is helpful to learn what may come with this debt. Plainly put, we can expect more financial crises. According to the U.S. Sun, “If the government doesn’t raise the debt limit, social security payments couldn’t be made, federal employees and US troops would not get paid, and food stamps would come to a halt.”

As a population, we are already in one of the most challenging economic and medical periods in history by way of the pandemic. The Center on Budget and Policy Priorities (CBPP) has confirmed in their Tracking the COVID-19 Economy’s Effects on Food, Housing, and Employment Hardships report:

“The impacts of the pandemic and the economic fallout have been widespread, but remain particularly prevalent among Black adults, Latino adults, and other people of color. These disproportionate impacts reflect harsh, long-standing inequities — often stemming from structural racism — in education, employment, housing, and health care that the current crisis has exacerbated.”

Case in point: Black and POC communities face the brunt of the potential failure to raise the debt ceiling after already enduring all of the above. Per CNN, “A default would likely be catastrophic, tanking markets and the economy, and delaying payments to millions of Americans.” Simultaneously, the Biden administration is aiming to drive a $3.5 trillion rebuilding plan, conceivably increasing spending measures.

Last week, the president explained to journalists at the White House, “We’re getting down to the hard spot here. We’re at this stalemate at the moment,” noted AP. The fact remains that government spending and economic growth perform in tandem. Moreover, items included in the quoted package are the president’s “…expansive effort to recast the nation’s tax and spending programs and make what he sees as sweeping, overdue investments,” as The News & Observer explained. Still, the timeliness of this recovery proposal concerns at large, as the Republican party is speculated to become the party of default.

A leading question for some legislators is uncomplicated, how much money does it take to make money? For comparative context, let’s examine budgetary distress archived from The Great Depression era. The Federal Reserve Bank of St. Louis documented, “In the 1930s, the United States was on the gold standard, meaning that the U.S. government would exchange dollars for gold at a fixed price. Commercial banks, as well as Federal Reserve banks, held a portion of their reserves… as required by law… The money stock fell during the Great Depression primarily because of banking panics. Banking systems rely on the confidence of depositors that they will be able to access their funds…”

Inflation and sharing factors of the times may not be analogously exact. However, discussions being published nationwide question how much confidence Americans will have in our government or its banking systems should we run out of money? The answer is en route. And with respect to presidential deals, The Atlantic described, “… Franklin D. Roosevelt and his New Deal… posted its biggest-ever peacetime debt increase. The debt jumped by 150% from 1930 to 1939, when it was at around $40.44 billion (about $673 billion in today’s money).” Presently, potential adjustments and open-ended debts are in the multi-trillion brackets.

Recent times illuminate how the youth is mobilizing toward willed political change more than ever. What level of responsibility do congresswomen and men have to ensure increased emergency enactments will serve the population inclusively? Additional debt ceiling inquiries might stretch beyond the scope of a $28.5 trillion financial formation. For example, will government leaders better acknowledge the nuances of the pandemic’s cultural and economic frameworks facing the distribution of wealth and resources? Market Watch has published, “U.S. sovereign debt generally has been considered the safest and most liquid to own in the world, and all kinds of financial market products and processes have been pegged to [be] orderly functioning…”

Also, adjacent to that nearly $21 trillion treasury market are other quantities — our country’s leaders had the chance to distinguish the current outcome as the nation hit its statutory debt limit in July. Today is the start of October. Inhabitants are now facing various socioeconomic interferences. Reopening pains compound peaking virus cases and unemployment rates, as those in power debate the debt ceiling. Republicans and Democrats have yet to announce a break in the named stalemate. As a result, previously summarized economists suggested in The New York Times that districts prepare for an anticipated “…catastrophic economic shock.”

Sources:

–https://www.cnn.com/2021/09/28/economy/debt-ceiling-deadline-yellen/index.html

–https://thehill.com/homenews/administration/572727-white-house-warns-gop-of-serious-consequences-on-debt-ceiling

–https://home.treasury.gov/about/general-information/officials/janet-yellen

–https://www.telegraph.co.uk/business/0/us-going-run-money/

–https://budgetcounsel.com/cyclopedia-budgetica/cb-fiscal-year/#:~:text=The%20fiscal%20year%20for%20the,year%20in%20which%20it%20ends.

–https://www.washingtonpost.com/politics/2021/09/22/debt-ceiling-explained/

–https://www.cbpp.org/research/poverty-and-inequality/tracking-the-covid-19-economys-effects-on-food-housing-and

–https://home.treasury.gov/system/files/136/Debt-Limit-Letter-to-Congress-20210928.pdf

–https://www.independent.co.uk/news/world/americas/us-politics/debt-ceiling-explainer-how-congress-b1929420.html

–https://www.nytimes.com/2021/09/27/us/politics/us-debt-ceiling.html

–https://bipartisanpolicy.org/debt-limit-through-the-years/