Lawmakers in the United States Congress have left for a two-week recess, leaving behind an unresolved issue of raising the debt ceiling. This has caused concern among economists, including Heather Boushey - a member of the Council of Economic Advisers and Chief Economist to the Invest in America Cabinet.
Boushey reportedly sounded an alarm on the urgency of dealing with this crisis. Speaking to reporters, she said that failure to raise the debt ceiling would result in catastrophic consequences for not only Americans but also global financial markets.
The US government hit its borrowing limit on August 1st and has been using extraordinary measures since then to avoid defaulting on its debts. These measures will be exhausted by October or November if lawmakers do not act quickly.
Raising the debt ceiling is essential as it allows borrowing beyond regular federal spending limits set by Congress. It essentially covers bills already incurred and prevents a default on US Treasury bonds held by investors around the world.
The current political climate complicates matters further as Republicans have refused to support raising the debt ceiling without concessions from Democrats on their policy priorities such as infrastructure spending and social programs.
Experts warn that even a temporary default could cause an economic downturn that may take years to recover from. Bond yields would spike, causing interest rates across all types of loans, including mortgages and student loans, to soar. The stock market would likely plummet, wiping out billions worth of investments.
As lawmakers head home during this break, there is growing concern about what will happen when they return if no agreement is reached before then. Economists like Boushey are urging them to act now before it's too late.