President Biden Signs Bill To Raise US Debt Limit

On Thursday, U.S. President Joe Biden signed a short-term bill to temporarily increase the nation's borrowing limit, averting a looming debt default that would cause an economic catastrophe.

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Biden's signature came two days after the U.S. House of Representatives voted along party lines to approve the bill. The Senate cleared the short-term debt limit extension last week. The temporary measure would raise the federal government's debt limit by US$480 billion, allowing the U.S. Treasury Department to meet obligations through Dec. 3 and giving lawmakers a few more weeks to find a way to address the issue.

U.S. Treasury Secretary Janet Yellen recently warned that lawmakers have until Oct. 18 to raise or suspend the debt limit before the federal government will likely run out of cash and extraordinary measures, possibly leading the United States to default on the national debt.

Another stopgap measure to fund the federal government also expires on Dec. 3, meaning Democrats and Republicans will have to reach a deal by early December to avoid the twin threats of a shutdown and a default.

Democrats are reluctant to raise the national debt limit on their own, fearing that doing so while also trying to pass a large social spending package along party lines could open them up to criticism of being fiscally irresponsible. Disagreements within the party might also dash Democrats' hopes of going it alone.

Nevertheless, Democrats have repeatedly argued that raising the debt limit does not authorize new federal spending, but only allows the Treasury Department to borrow additional funds to cover expenditures that have already been approved by Congress, including COVID-19 relief bills and the tax cuts rolled out during the President Donald Trump (2017-2021).

"The mounting political brinkmanship over the debt limit is thus painful to watch," Moody’s Analytics chief economist Mark Zandi said, adding that "If lawmakers are unable to increase or suspend the debt limit before the Treasury fails to make a payment, the resulting chaos in global financial markets will be difficult to bear."

Noting that it's "highly unproductive" for lawmakers to bicker over the U.S. debt ceiling, International Monetary Fund (IMF) Chief Economist Gita Gopinath called for a long-term solution.

"And that could be done by replacing the debt ceiling with some kind of a medium-term fiscal target, as opposed to the debt ceiling, or, automatically raising the debt ceiling whenever, to be in line with whatever it is in terms of taxes and appropriations that the Congress has approved, so it happens automatically," she said.