Debt ceiling deadlock unresolved, U.S. Treasury "default insurance" for one-year and five-year periods has soared to levels not seen in over a decade. Will there be a default?

The debt ceiling is like the rotation of a celestial body, coming into focus at regular intervals and then being speculated upon. According to the Financial Times (FT), the cost of insuring against a US government default has soared to an 11-year high, indicating market concerns over the deadlock in negotiations over the US debt ceiling.

Understanding the Debt Ceiling Correctly

The debt ceiling may sound scary, but it's actually like the rotation of a planet, getting hyped up every once in a while (a small fuss every two years, a big fuss every few years).

The debt ceiling can be seen as the country's expenses. The annual budget arrangement by Congress is actually one of the contents of the debt ceiling. Many expenditures are long-term and fixed, including social security, Medicare, defense spending, education, and so on. Setting aside whether the deficit will affect the national economy, if a political party's obstruction leads to a default on the debt ceiling, it will be the people who suffer, which also affects the votes.

The probability of defaulting on the debt ceiling is very low because the political parties see the debt ceiling as one of the tools to constrain their opponents, and ultimately, it will be passed. However, this political tool will affect the policies of the Treasury Department and the Federal Reserve, which is why Janet Yellen believes the debt ceiling should be abolished. The existence of this tool limits the government's ability to respond to economic crises, leading to unnecessary risks.