The Insecure Dollar

Essays | Seth Rothbaum | Oct 4th, 2021.

The dollar is a pillar of the world economy. It can be seen almost everywhere and is a key component of international trade. This is because of its perceived stability. Other countries view the dollar as stable, despite the large debt of the US government, because the government is able to guarantee that its debt will be paid back. But this government guarantee has recently come under scrutiny. Due to new legislation that has increased government spending, such as the $900 billion pandemic relief bill, US debt for this year has reached the debt ceiling. The debt ceiling is a number set in place that limits the total spending of the US government to prevent it from issuing more debt than it can pay back. Should the spending continue to increase without the limit of the debt ceiling increasing, the US will be forced to default on its loans when the Treasury is emptied. Currently, the Treasury is set to run out on October 18, 2021. Defaulting on these loans would result in a great devaluing of government bonds and thus the dollar as a whole. It would also greatly reduce the economic influence of the United States internationally since the dollar’s international use is based upon its stability. To prevent this, the debt ceiling could be raised or the total spending could be decreased. Raising the debt ceiling would delay the defaulting and would continue the long-used practice. On the other hand, the government could cut spending for certain programs, thereby reducing the need for continual debt ceiling increases. Whichever decision the government chooses, it must act quickly or risk severe economic repercussions.