To the debt ceiling, and beyond!

With all the hubbub going on recently about the debt ceiling, many people are confused. That’s understandable considering the raising of the debt ceiling has always been a very unremarkable, bipartisan act of Congress. To help you understand what’s happening right now, I’ll briefly discuss what the debt ceiling is and why understanding it is important.

The debt ceiling, quite simply, is the cap set by Congress on the amount of debt that the federal government can borrow.

The limit was first set in 1917 and has been routinely raised 74 times since then without opposition. This time around, some politicians are refusing to raise it until Congress and President Obama agree to spending cuts and other ways to curb debt.

Unfortunately, this is a flawed approach because the debt ceiling has nothing to do with future spending; the debt ceiling needs to be raised in order to pay bills the country has already incurred. (Bills that, ironically, Congress approved at one time or another.)

If the debt ceiling isn’t raised by the August 2nd deadline, the United States will not be able to pay its bills. This could lead credit rating agencies to downgrade their assessment of the government’s finances, causing more damage to financial markets and leading to rises in interest rates. (Moody’s has already placed the United States’ Aaa debt rating on review because of this debacle.)

A last resort could be President Obama raising the limit himself, citing the 14th Amendment which assets the full faith and credit of the United States.

To follow new developments as they happen, check out the Huffington Post’s live blog.

One Reply to “To the debt ceiling, and beyond!”

Leave a Reply to The Trillion Dollar Coin @ Rational Reactor Cancel reply

Your email address will not be published. Required fields are marked *