5 What Is the Debt Ceiling?
Most folks aren’t exactly clear on what the debt ceiling/debt limit is in the first place, so let’s explain it using a simple analogy. Picture your own wallet: say you have four dollars and a credit card in there. That credit card, then, is your lifeline for gas, groceries and tickets to the movies. What would happen if you suddenly hit the limit on that card, well before expected? Few snacks, little gas and certainly no cinematic entertainment, right? Well, when the government hits a limit that can’t go up, it’s more like reduced social security checks, no more funding for major government projects (roads, bridges, medical studies, etc.), and the slow crumbling of the economy. The borrowing limit is currently set at $16.7 trillion a year. A failure to raise it by the 17th of October means we will have hit that limit and have no way to borrow more money, leaving the Feds slashing away at programs across the boards.
4 The Damage Caused by a Default is a Vicious Cycle
The federal government (largely the Federal Reserve) has played a huge role in the economic recovery that has seen us leaving the Great Recession behind. If we don’t raise the debt limit and allow the federal government to continue borrowing (and therefore spending) money it will be all but powerless to continue helping that recovery. By hamstringing the federal government’s ability to borrow, congress will ruin the government’s ability to prop up the economy, potentially sending us back into recession, which would necessitate even more help from the government, which would remain powerless to provide that assistance.
3 Why Is This Debate Even Happening?
Since the debt limit was established in 1917, it has been raised dozens of times, including 25 increases when you combine the administrations of Presidents Reagan and G.W. Bush. In the past, a debt ceiling vote was simply a matter of procedure, not politics. Recently, though, in the ever more divided world of Washington politics, lawmakers have realized that threatening to hold up a debt limit increase is a wonderful (meaning ghastly) way to gain leverage on other issues, namely the Affordable Care Act AKA Obamacare. Republicans seem ready to ravage the wellbeing of the country in order to gain a few points in the political arena.
2 A Default Caused by a Failure to Raise the Debt Limit Is Illegal
The laws governing our national Treasury Department—laws of course passed by congress—do not allow the treasurer to not pay for things. And we certainly can’t decide which bills/debts we will pay for and which we won’t (money for missiles but not for food subsidies or vice-versa, for example), so if the borrowing stops, it means universal cuts. But many programs have already spent allocations (ordering materials for a building project, for example) and our lenders have already lent money; the government can’t legally not pay for things it already bought or not repay existing debts any more than you could simply not pay your credit card bill.
1 A Failure to Raise the Debt Limit Could Ruin the Global Economy
Myriad intelligent, experienced economists, political theorists and the few level-headed legislators left on Capitol Hill agree that a failure to raise the debt ceiling and keep cash flowing could imperil the entire world. America is the economic engine of the entire world: our spending and consuming keeps the world doing the same; our trusted record on borrowing and repaying keeps credit available around the globe; our stock markets set the bar for worldwide trading and investing. If our own government chooses to punch itself in the proverbial crotch, the whole world might feel the ache.