4. Debt limit in the US - what is going on?

In the US, legislation limits the amount federal government borrows. The limit was suspended 2 years ago. 

The rest is (quite) a bit crazy, so read it carefully.

The debt limit was reached Aug 1, 2021. To pay US federal obligations, the Treasury department (i.e. Ministry of Finance) has been using "extraordinary measures" - equivalent to looking for spare change among your couch cushions. Some time around mid October these measures will no longer be sufficient. one of three things will happen:

1. The Congress will increase or suspend the limit.

2. US will default on its debt (i.e. some US government bonds or their interest will not be paid). Before this happens, markets will wobble; if it lasts any length of time, it will be a disaster for the world economy.

3. An interesting option is for the Federal Reserve to enable funding of government operations by buying US debt in the open market and ignoring lack of repayments.

So what is it all about? Politics. Republicans are hoping that problems will worsen the fortune of Democrats. They argue that they do not want allow Democrats to increase spending in the future.

Does  the explanation make any sense? Not at all. They talk about future spending; the debt is the result of a past spending. It has been best explained in the letter of the Treasury Secretary to the congress (Debt-Limit-Letter-to-Congress-20210723-Pelosi.pdf (treasury.gov)):

" Since 1960, Congress has acted 78 separate times to permanently raise, temporarily extend, or revise the definition of the debt limit – 49 times under Republican presidents and 29 times under Democratic presidents."

Can we predict what will happen? my bet is 1 above, but who knows.

In Canada, we do not have such problems, or nonsensical politics.

Note that the thrid option is interesting. The FED can legally do it if pushed against the wall (it would help stabilize the US economy). But they would hate to do it because this would mean financing government debt. Also, they think even talk about it is dangerous because it encourages politicians to be intransigent.