Does Raising Debt Ceiling Bad for Longer Run in Stock-market?
The debt ceiling topic was trending on Twitter yesterday morning for a few hours just after Joe Biden announced that they might stop funding for Iron dome which costs around $1 Billion. For those who do not know, for the last few years, the US has been funding the maintenance of the Iron dome. This topic of the debt ceiling has become trending ever since this news regarding Israel came out.
As a matter of fact, to fire one missile from the Iron dome requires around $100K. Israel needs hundreds of such missiles to counter missiles fired by Hamas every year. With a view to helping the Israeli government, the US has stepped up and helped Israel with this maintenance.
What is a Debt ceiling?
To maintain the yearly budget, the US government borrows billions of dollars every year. A debt ceiling is nothing but the upper limit set on the amount that the US government can borrow. They cannot borrow more than that amount. In case the ruling government wants to increase the debt ceiling, they have to pass a bill.
Due to the corona crisis, the debt ceiling was increased by 28 Trillion dollars by the US government. Ever since the Democratic party passed a bill to increase the debt ceiling, many people started talking about it on Twitter and connecting it with the future of the stock market and digital currency.
What is my take?
As long as I know, when a government borrows money from the world bank and other private institutions, it prints new currency when it repays the debt. The government uses this money to build infrastructure and boost the economy. As a matter of fact, this growth is not organic and the country is witnessing this growth because of the money pumped by the government.
Once, the government will stop pumping money into the market, the rate of economic growth will be reduced. This might end up in higher unemployment. If this is true then this negative news will definitely hurt the stock-market sentiments and it will end up in the stock-market crash.
Bottom line:
I have been following world politics and the stock market for the last many years and I wrote my perception. Do share your point of view regarding this topic by commenting below. I would be glad to hear back from you.