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So What Is the Debt Limit Anyway? Here’s What to Know.

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So What Is the Debt Limit Anyway? Here’s What to Know.

The wrangling over the nation’s debt limit raises a lot of questions, including what it actually is and why the United States has one.

Here’s everything you need to know.

The debt limit is a cap on the total amount of money that the United States is authorized to borrow to fund the government and meet its financial obligations.

Because the federal government runs budget deficits — meaning it spends more than it brings in through taxes and other revenue — it must borrow huge sums of money to pay its bills. Those obligations include funding for social safety net programs, interest on the national debt and salaries for members of the armed forces.

Approaching the debt ceiling often elicits calls by lawmakers to cut back on government spending. But lifting the debt limit does not actually authorize any new spending — in fact, it simply allows the United States to spend money on programs that have already been authorized by Congress.

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The United States officially hit its debt limit on Jan. 19, prompting the Treasury Department to use accounting maneuvers known as extraordinary measures to continue paying the government’s obligations and avoid a default. Those measures temporarily curb certain government investments so that the bills can continue to be paid.

Treasury Secretary Janet L. Yellen has warned lawmakers that the United States could run out of cash in early June if the borrowing cap isn’t raised or suspended.

The national debt crossed $31 trillion for the first time last year. The borrowing cap is set at $31.381 trillion.

According to the Constitution, Congress must authorize government borrowing. In the early 20th century, the debt limit was instituted so that the Treasury would not need to ask Congress for permission each time it had to issue debt to pay bills.

During World War I, Congress passed the Second Liberty Bond Act of 1917 to give the Treasury more flexibility to issue debt and manage federal finances. The debt limit started to take its current shape in 1939, when Congress consolidated different limits that had been set on different types of bonds into a single borrowing cap. At the time, the limit was set to $45 billion.

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While the debt limit was created to make government run more smoothly, many policymakers believe that it has become more trouble than it’s worth. In 2021, Ms. Yellen said she supported abolishing the debt limit.

If the government exhausts its extraordinary measures and runs out of cash, it would be unable to issue new debt. That means it would not have enough money to pay its bills, including interest and other payments it owes to bondholders, military salaries and benefits to retirees.

No one knows exactly what would happen if the United States gets to that point, but the government could default on its debt if it is unable to make required payments to its bondholders. Economists and Wall Street analysts warn that such a scenario would be economically devastating, and could plunge the entire world into a financial crisis.

Various ideas have been raised to ensure that critical payments are not missed — particularly payments to the investors who hold U.S. debt. But none of these ideas have ever been tried, and it remains unclear whether the government could actually continue paying any of its bills if it can’t borrow more money.

One idea that has been proposed is that the Treasury Department would prioritize certain payments to avoid defaulting on U.S. debt. In that case, the Treasury would first pay the bondholders who own U.S. Treasury debt, even if it delayed other financial obligations like government salaries or retirement benefits.

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So far, the Treasury seems to have ruled that out as an option. Ms. Yellen has said that such an approach would not avoid a debt “default” in the eyes of markets.

“Treasury systems have all been built to pay all of our bills when they’re due and on time, and not to prioritize one form of spending over another,” Ms. Yellen told reporters earlier this year.

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Probe of Evergrande founder adds to pressure on Chinese developer

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Probe of Evergrande founder adds to pressure on Chinese developer

Thursday’s announcement by Evergrande was as ominous as it was curt. Hui Ka Yan, the billionaire chair behind the indebted Chinese property group, was under unspecified “mandatory measures” for suspicion of “illegal crimes”.

The one-page release was typically short on details from a company that has been locked in an opaque restructuring process since it defaulted on its international debts two years ago. But between the lines, it captured a wider shift in mood.

This was intended to be the moment when after two years of fractious negotiations, investors were getting closer to a deal. Instead, the uncertainty over Hui is just one of a series of indicators that seem to make the fate of Evergrande more difficult to determine.

Employees of its wealth management subsidiary were also detained this month, police in Shenzhen said. Its restructuring plan was this week derailed by an official investigation and it also missed payments on onshore bonds.

More than ever, the future of the developer, which with more than $300bn in liabilities has come to embody both the excesses of a Chinese multi-decade property boom and its recent unravelling, appears tied to Beijing.

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Policymakers are under pressure to tackle a property slowdown that shows few signs of ending. Since Evergrande’s default, the sector, which typically accounts for more than a quarter of economic activity, has weighed on growth alongside the impact of a three-year zero-Covid policy.

The investigation into Hui was part of the “standard playbook”, said one person involved in property projects in the Chinese mainland. “The thing has collapsed and people are held to account,” he said.

In this context, the debt restructuring of the world’s most indebted property developer has attracted even more scrutiny.

“It’s very clear to us what will happen if there isn’t a restructuring,” said one person familiar with the restructuring discussions. “This will be a gigantic liquidation that will have far-reaching consequences for everyone involved in the history of this company: directors, advisers, auditors.”

Investors in Evergrande’s billions of dollars of offshore debt were this week supposed to vote on a plan that would have led to their receiving new notes linked to the equity of the group’s Hong Kong-listed subsidiaries. Evergrande shares, suspended since March 2022, resumed trading in late August in anticipation of the plan’s approval.

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$300bnEvergrande’s total estimated liabilties

But the scheme was derailed at the last minute. In a filing to the Hong Kong stock exchange, the company cited an official “investigation” as a reason for the delay. It did not say who was conducting the investigation. In August, it said there was a China Securities Regulatory Commission investigation into information disclosure.

People familiar with the matter said they had been told the CSRC had rejected an application to issue the new equity-linked instruments. It is unclear why this application was rejected.

Evergrande has hired US firm Houlihan Lokey and law firm Sidley Austin to represent it in its talks over the offshore restructuring.

Investors, which had about $20bn in international debt at the time of its default and are represented by law firm Kirkland & Ellis and investment bank Moelis, threatened legal action in 2022 and complained over a lack of engagement. The tone improved when the now-derailed plan emerged in March.

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One person involved said there had this week been a lot of “strategising” to try to “reconstruct” the plan in a way that avoided any conflict with the CSRC.

Brock Silvers, chief investment officer at private equity firm Kaiyuan Capital in Hong Kong, said the restructuring had suffered a “setback” but suggested that “all parties were anxious to avoid a wind-up”.

Investors in dollar bonds are “not in a strong position” but “could still dramatically worsen the company’s situation” because of their legal claims, he said, while regulators “need Evergrande to survive to bolster the economy and placate domestic investors and suppliers”.

A wipeout of dollar bonds “would also ruin the outlook for offshore debt issuance at a time when China is desperately seeking foreign investment”.

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Evergrande, which in July disclosed losses of $81bn over 2021 and 2022, this week missed Rmb4bn ($548mn) in payments on a mainland bond, according to a Shenzhen filing. Silvers noted authorities are “very sensitive to such domestic market turbulence”.

Early in the pandemic, Beijing introduced limits on leverage at developers, as well as other policies designed to stop the housing market overheating. But, as sales at major developers have slumped, it is now showing signs of easing its approach. City authorities have in recent weeks removed some purchase constraints on first-time buyers.

Fitch, the rating agency, on Thursday said that stress in China’s property sector would “continue to pose cross-sector credit risks in the near term”, and that “the government’s modest policy easing to date is unlikely to drive a sharp turnaround in homebuyers’ sentiment”.

While the government’s position on Evergrande and its restructuring is unclear, the new announcement related to Hui hints at consequences for the individuals involved.

Hui, who was born in 1958 and launched Evergrande in the 1990s, was once known for his political connections but was excluded from the Chinese People’s Political Consultative Conference, an advisory body to the government, in 2022.

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Uncertainties over his whereabouts only adds to the doubts over the restructuring. “No one wants to be publicly responsible for this name in any shape or form,” the person familiar with the restructuring said.

“You don’t really know who’s controlling the company,” the person added, pointing to the presence of a company board, an executive management team and risk committee involved in the restructuring. “Trying to understand who is the relevant decision maker is very difficult.”

Additional reporting by Gloria Li in Hong Kong and Cheng Leng in London

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Shocking moment five Border Patrol agents CUT through razor wire at Eagle Pass and allow migrants to enter the US – after Texas Governor Abbott re-installed it along Rio Grande

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Shocking moment five Border Patrol agents CUT through razor wire at Eagle Pass and allow migrants to enter the US – after Texas Governor Abbott re-installed it along Rio Grande

This is the shocking moment five Border Patrol agents cut through razor wire at Eagle Pass and help migrants to enter the US. 

The group can be seen actively pulling away the razor wire and cutting it with what appears to be bolt cutters before helping numerous migrants up an embankment. 

Footage of the scene obtained by DailyMail.com then shows the officers helping a group of migrants including women and children who are hoisted up by officers. 

Officers can then be seen helping women carrying their children up over the embankment, and also placed fabric over the wire to avoid any injuries. 

After making it over the border, those who have just crossed can be seen lining up to be processed.  

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The video was captured on the banks of the Rio Grande near Eagle Pass, Texas, which has been inundated by migrants in recent days.

The group can be seen actively pulling away the razor wire and cutting it with what appears to be bolt cutters

Officers can then be seen helping women carrying their children up over the embankment

Officers can then be seen helping women carrying their children up over the embankment

After cutting the wire, the officers can be seen helping the large group which included women and children, who were hoisted up by officers

After cutting the wire, the officers can be seen helping the large group which included women and children, who were hoisted up by officers

In recent weeks, the town of Eagle Pass has been overwhelmed with migrants who have been arriving in droves

In recent weeks, the town of Eagle Pass has been overwhelmed with migrants who have been arriving in droves

Texas Governor Greg Abbott had the Texas National Guard install and then reinstall the razor wire that is being cut through in the video. 

Governor Abbott had previously eviscerated President Biden over his move to have the wire taken down, which allowed more migrants over the border. 

Border crossings have risen to 8,000 a day in the week ending September 22, according to the Washington Office of Latin America. 

Throughout the month of August, upwards of 232,000 migrants made their way over the US-Mexico border. 

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Eagle Pass alone has been overwhelmed with migrants in recent days, with more than 7,500 flooding into the town of 28,000 people on Monday and Tuesday. 

Mayor Rolando Salinas of Eagle Pass signed an Emergency Declaration after the new surge of migrants started arriving last weekend.

Salinas also stated the city of Eagle Pass would not be opening a shelter: ‘We don’t have the funds or resources to do that.’

A similar situation to the above video had also unfolded on Saturday, when a 100-strong crowd arrived in Piedras Negras on the Mexican side, before wading through waist-deep water and past Border Patrol boats. 

Migrants crossing the border on Thursday wave the flag of Venezuela as they wade through the Rio Grande

Migrants crossing the border on Thursday wave the flag of Venezuela as they wade through the Rio Grande

After making it over the border, those who have just crossed can be seen lining up to be processed

After making it over the border, those who have just crossed can be seen lining up to be processed

Using what appears to be bolt cutters, the officers made short work of going through the fence to let the migrants in

Using what appears to be bolt cutters, the officers made short work of going through the fence to let the migrants in

One Border Patrol agent can be seen here carrying a child over the barbed wire that has been cut

One Border Patrol agent can be seen here carrying a child over the barbed wire that has been cut

A previous move to cut the razor wire was down to the intense heat and the amount of time a large group had spent out in the open

A previous move to cut the razor wire was down to the intense heat and the amount of time a large group had spent out in the open

Exclusive DailyMail.com photos show the group engaged in a standoff with Border Patrol and National Guard boats which circled and blocked them as they attempted to cross. 

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After nearly four hours in the river and on the bank, guards were eventually forced to cut through the razor wire and allow the group through due to concerns for their welfare.

A local law enforcement source told DailyMail.com the decision was made due to the fiery border heat and the extended time the group spent out in the open.

Although largely made up of men, a handful of the Venezuelan and Nicaraguan migrants were women and children – some of whom looked unwell and dehydrated by the time they were allowed into the US.

Some of the babies were carried by National Guard and Border Patrol personnel who took the infants from their exhausted mothers as they struggled up the bank. 

After the wire was cut last week, Governor Abbott took to X, formerly known as Twitter, and said: ‘Texas installed razor wire in Eagle Pass to stop illegal crossings. 

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‘Today the Biden Admin CUT that wire, opening the floodgates to illegal immigrants. 

‘I immediately deployed more Texas National Guard to repel illegal crossings & install more razor wire.’

National guard in boats and air boats and razor wire along the banks tried discourage the migrants from crossing the Rio Grande and entering the USA on September 23

National guard in boats and air boats and razor wire along the banks tried discourage the migrants from crossing the Rio Grande and entering the USA on September 23

Todd Bensman, a border expert from the Center for Immigration Studies, explained earlier this week: ‘Eagle Pass is an easy place to get to from farther south by freight rail, cargo train. So, it’s just naturally a spot where people go.

‘And then also there’s been a lot of success for families, immigrant families to get into the country if they can get past the Texans.

‘The Texans are kind of a problem for them, but they find that they still can get through pretty easily to Border Patrol.

‘Once they reach Border Patrol, they are going to let them into the country in a day or two.’

Earlier today, Elon Musk made an appearance at Eagle Pass and livestreamed from the town – saying he wanted to to share with his 158 million followers the scenes from the overwhelmed border town.  

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A Stetson-wearing Elon Musk was in Eagle Pass, Texas on Thursday to try and livestream interviews from the struggling border city

A Stetson-wearing Elon Musk was in Eagle Pass, Texas on Thursday to try and livestream interviews from the struggling border city

Musk, wearing a Stetson hat, opened by saying he was there to ‘eyeball what was going on, so you can get the real story.’ 

Flanked by Tony Gonzalez, the local congressman, Musk said: ‘This is not a piece that is being filmed and subsequently edited. This is the raw feed, right here.’

He added: ‘As an immigrant to the United States I am extremely pro-immigrant, and I believe we need an expanded immigration system so anyone who is hard-working and honest should be let in.

‘But we should not let in people breaking the law. That doesn’t make sense. The law is there for a reason.’

He said it was important to stop ‘a flow of people that is of such magnitude that it is leading to a collapse of essential services, and causing even America’s largest city, New York, to buckle under the pressure.’

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Stateside, matters are even worse after more than three years of thousands of illegal entries a day – leaving states like Texas, and more recently New York, at a loss.

Migrants cross the Rio Grande river border from Piedras Negras, Mexico, with the majority of them from Venezuela

Migrants cross the Rio Grande river border from Piedras Negras, Mexico, with the majority of them from Venezuela 

According to federal data an average of 1,000 people have been sent back across the border each month since Title 42 ended in May

According to federal data an average of 1,000 people have been sent back across the border each month since Title 42 ended in May

The Biden Administration, even after its rescinding of Title 42, has failed to address the crisis, and is actually turning a lower percentage of border-crossing migrants back into Mexico than his predecessor, statistics show.

Title 42 had been brought in by then-President Donald Trump in order to regulate border crossings under the premise of increased COVID-19 precautions. 

According to federal data an average of 1,000 people have been sent back across the border each month since Title 42 ended in May, compared with nearly 3,000 the month before.

In August, the U.S. Border Patrol made 181,509 arrests at the Mexican border, up 37 percent from July, according to figures released last Friday.

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New York City officials announced on Wednesday that they would be distributing flyers at shelters at the southern border telling migrants that they will not be given free housing in the Big Apple. 

The city had already distributed similar flyers in July to discourage asylum seekers at the border, but the updated message is much more blunt

The city had already distributed similar flyers in July to discourage asylum seekers at the border, but the updated message is much more blunt

As the city ran out of space, landmarks like The Roosevelt Hotel have been turned into emergency shelters

As the city ran out of space, landmarks like The Roosevelt Hotel have been turned into emergency shelters

Mayor Eric Adams’ administration announced it would distribute the literature as part of their efforts to keep more asylum seekers from coming to the city.

As the city ran out of space, iconic landmarks like The Roosevelt Hotel have been turned into emergency shelters. 

According to Manhattan Borough President Mark Levine, asylum seekers are costing the city roughly $10 million every day. 

Mayor Adams has said the crisis will cost the city $12billion over three years, and has been telling migrants the city was at capacity since July.

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He has warned that if the situation continues to escalate without federal help, the crisis would ‘destroy the city’. 

The topic of immigration was also repeatedly spoken about during the Republican presidential primary debate on Wednesday. 

Seven GOP contenders took stage at the second Republican primary debate on Wednesday evening at the Ronald Reagan Presidential Library in Simi Valley, California

Seven GOP contenders took stage at the second Republican primary debate on Wednesday evening at the Ronald Reagan Presidential Library in Simi Valley, California

Seven GOP hopefuls presented their ideas to voters, with businessman Vivek Ramaswamy proposing that he would ‘seal’ the southern border.

Florida Governor Ron DeSantis said that he would declare the ongoing crisis a national emergency and reinstate the ‘Remain in Mexico’ policy.  

Meanwhile former New Jersey Governor Chris Christie said that he would have the National Guard at the border should he be made President. 

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Former Vice President Mike Pence said he would reinstate the Trump-administration’s immigration policy on the border. 

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China looks to relax cross-border data security controls

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China looks to relax cross-border data security controls

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China has moved to water down some of its tough cross-border data controls amid complaints from foreign businesses and a teetering economy.

The Cyberspace Administration of China unveiled rules on Thursday evening which look to clarify and simplify the transferring of data out of the country for ordinary business activities. 

Beijing’s move to walk back part of its burdensome regime comes amid efforts to reassure foreign businesses concerned about deteriorating US-China relations and the creeping influence of its own security apparatus.   

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Under the security rules in place, CAC has been reviewing reams of data export submissions from foreign groups wanting to share “important data” abroad.

However, the rules “created an untenable situation, with people unsure if they should apply for the data reviews and unsure on what counted as important data”, said Graham Webster, a China expert at the Center for International Security and Cooperation at Stanford University.

“These changes would create a more clear path for most data to be sent abroad,” he said. 

CAC’s new draft rules state that only data explicitly categorised as important by government agencies would need to be submitted for security review. The draft rules allow global companies to share employee records outside the country, while personal information — needed for cross-border purchases or reservations — can also be sent without security reviews.  

China’s tough controls, coupled with an expanded anti-espionage law that went into effect in July, spurred many foreign groups to begin hiving off their local IT systems and data. Many companies have opted to fully localise data for fear of inadvertently transferring out sensitive material. 

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CAC’s draft rules are open for public comment until mid-October and it is unclear if the changes will be enough to assuage foreign companies.

An expanded anti-espionage law remains in place and the Ministry of State Security has pushed a “whole of society” approach to policing security risks — under which all citizens are encouraged to join the ministry’s fight against espionage — while stepping up its domestic propaganda efforts. 

State security officials have raided the offices of US consultancies such as Bain & Company and Mintz Group this year, and aired a primetime broadcast of police searching the offices of Capvision, the expert network group which helped foreign investors with due diligence. Chips from Micron Technology, the US semiconductor giant, have also been labelled “serious network security risks” and banned in infrastructure.

“Security is still a huge concern for Xi Jinping’s China,” said Webster. “They’ve been sending mixed signals on gathering data and sending it abroad.”

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