The exponential growth of the US public debt in the last 15 years did not affect its ability to borrow from the markets, but the repeated political disputes within the country over the increase of its permissible limit cast their shadow on the global economy.

The debt ceiling was established in 1917 to make it easier for the Treasury to issue bonds without the need for legislation while borrowing was below the ceiling.

When borrowing reached the allowable limit, a majority in both houses of Congress, the House of Representatives and the Senate, had to vote to increase or temporarily suspend it.

This procedure was rather routine in the previous century. Since 1960 there have been a total of 78 increases in the US debt limit, of which 49 were under Republican and 29 under Democratic presidents.

In recent years, however, this has changed, due to the great polarization in the American political scene. In 2011, when Barack Obama was president, a thriller unfolded, with Republicans agreeing to increase the debt two days before the date the Treasury expected to run out of money. But that tug-of-war has had an impact, with US stocks experiencing the most volatility since the 2008 crisis and credit rating agency S&P downgrading US debt for the first and only time.

Accordingly, in 2013, when Obama was president again, the obstruction of the Republicans to agree to the increase of the debt limit led to a temporary suspension of operations of the American public services (shutdown). The debt limit was also increased during the presidency of Donald Trump, but without tensions as there was an agreement on the part of the Democrats.

This January, the US debt reached the permissible limit of 31.4 trillion. dollars, which is three times the level of debt in 2008 ($10 trillion) and almost 10 times higher than in 1990 ($3.2 trillion). The great financial crisis of 2008 and the coronavirus pandemic were the two critical stations that sent the US debt soaring, with its height as a percentage of GDP reaching 121.7% of GDP last year from 108.7% in 2019. Overall, since the beginning of the 21st century, US fiscal policy has been expansionary, with an average annual deficit of 1 trillion. dollars.

Since January, the US Treasury has not taken on new borrowing to avoid breaching the debt ceiling, covering its spending with current revenues and some accounting tricks. Treasury Secretary Janet Yellen had warned, however, that the US government would not be able to pay its obligations from June 1 without increasing the ceiling.

A US default on its bonds would obviously have a knock-on effect on international markets as well as the US and global economy, given the size of the US debt. This makes it unlikely that a solution will not be found.

However, it wasn’t until early May that the substantive process began for the White House to reach a compromise with Republicans, who hold the majority in the House of Representatives and are demanding a range of spending cuts to give the go-ahead to raising the debt limit.

Last week, talks accelerated and House Speaker Kevin McCarthy said there could be an agreement in principle this weekend. Both he and Democratic Senate President Chuck Schumer are ready to convene the two chambers to vote on any deal before June 1. But on Friday, talks broke down shortly after delegations from the two sides met, with Republican negotiators accusing the other side of an irrational stance.

The president, Joe Biden, had asked Republicans to raise the limit without the conditions they set for reducing spending, but then, when he saw that they did not budge, he entered into a negotiation. Politically, this is difficult as Republicans call for additional restrictions on food and other welfare benefits for economically vulnerable Americans.