US debt crisis: balance between rising debt and cutting spending

The US House of Representatives has finally passed the debt limit hike bill. It will go to the Senate where it is expected to be passed too. The US federal government’s debt limit has been hiked from the current $14.3 trillion to $16.7 trillion ($2.4 trillion increase), with corresponding spending cut of $2.3 trillion over the next 10 years. Here is a chart from BBC News today, showing how many times US Congress has revised upwards the US debt limit.

It is not good to hear that a government temporarily solves a debt crisis by raising its ability to borrow more, meaning increasing its debt stock even higher. But between that option and a default in paying some of its maturing debt, the former is a more palatable option. Again, we hope that a long-term solution can be worked out there so that another round of global credit uncertainty will be minimized, if not avoided.

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