U.S. debt ceiling impasse puts Canadians at risk

Opinion

Hey there, time traveller!
This article was published 27/05/2023 (834 days ago), so information in it may no longer be current.

Imagine having a next-door neighbour who is deep in debt and constantly using his credit cards and line of credit to pay his bills.

And imagine a situation in which his bank refuses to increase his credit limit for the umpteenth time, but you end up losing your job, the interest rate on your mortgage goes up, and your retirement savings evaporate.

That sounds extravagantly dramatic, but that’s kind of what it’s like living next door to the United States these days, while the possibility of that nation hitting its debt ceiling looms larger with each passing day.

More than a century ago, the U.S. Congress passed a law specifying the maximum amount of outstanding federal debt the U.S. government can incur. At this moment, America’s total national debt stands at approximately $32 trillion, and that number keeps climbing because Congress keeps spending more money than it receives in taxes and from other revenue sources.

The total amount of U.S. government debt is projected to hit the current debt ceiling by as early as June 5. That is, unless both the House of Representatives and Senate pass legislation increasing the debt limit before then.

Over the past several decades, it’s become a routine process as the debt continued to grow. Indeed, the ceiling has been increased 78 times since 1960, but the issue has become highly politicized over the past decade. Since the Obama presidency, there is always a high-stakes game of “chicken” between the Republicans and Democrat when U.S. debt approaches the limit.

It’s a reckless way to manage that nation’s finances, considering the potential consequences of not increasing the debt ceiling. The Brookings Institute describes those consequences this way: “If the debt ceiling binds, and the U.S. Treasury does not have the ability to pay its obligations, the negative economic effects would quickly mount and risk triggering a deep recession.”

The Centre for Foreign Relations states: “Some experts say that would herald chaos for the U.S. and global economies. Even short of default, hitting the debt ceiling would hamstring the government’s ability to finance its operations, including providing for the national defence or funding entitlements such as Medicare or Social Security.”

It adds that “Potential repercussions of reaching the ceiling include a downgrade by credit rating agencies, increased borrowing costs for businesses and homeowners alike, and a dropoff in consumer confidence that could shock the United States’ financial market and tip its economy — and the world’s — into immediate recession.”

If you’re thinking this is an American problem that we don’t need to worry about here in Canada, think again. The United States is Canada’s largest trading partner. We have highly integrated economies and, because of that fact, a serious hit to the American economy would instantly impact ours, in the form of a deep recession, job losses, higher interest rates and a stock market downturn.

Each time the U.S. has found itself in this situation, leaders in the White House and Congress have arrived at an agreement before the deadline. That could happen again this time and, given the massive risks associated with not raising the debt ceiling, there will likely be a last-minute compromise. Even if that happens, however, they have to admit this is no way to run the world’s largest economy.

And it’s no way to treat their neighbours, allies and trading partners.

Here in Canada, it’s time for our leaders to take concrete steps to better protect our economy and our jobs from the reckless, partisan brinksmanship that is occurring south of the border.

We can’t afford the risk of becoming collateral damage in America’s political games.