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Till debt do us part: The showdown over the debt ceiling
By Zachary Roth | Mon Jan 3, 5:13 pm ET

A major Washington confrontation is brewing over the national debt.

South Carolina Sen. Jim DeMint (pictured) is urging fellow Republicans to resist an effort to raise the federal debt ceiling, calling instead for spending cuts that would keep the budget within the current debt limit. "This needs to be a big showdown," the conservative lawmaker declared in an interview with the magazine Human Events.

But the Obama administration says exceeding the debt limit -- the result of failing to raise the ceiling -- would be disastrous. "The impact on the economy would be catastrophic," Austan Goolsbee, the chair of the White House Council of Economic Advisers, said yesterday on ABC News' "This Week." "I mean, that would be a worse financial economic crisis than anything we saw in 2008."

What's really at stake in the debt-limit fracas? Here's a rundown.

What is the debt ceiling, anyway?
In 1917, Congress passed a law establishing a limit on the amount of debt the federal government can carry. If the country's accrued debt exceeds this limit, the United States essentially defaults on its obligations. The law was intended to make borrowing easier, not harder, since before this, Congress had to approve each debt issuance separately.

How close are we to breaching it?
The ceiling currently stands at $14.3 trillion, since it was last raised in February 2010. The government's debt is now at $13.9 trillion. We're expected to reach the limit in March, if it's not raised before then.

What would happen if we eclipse the limit?
Goolsbee's view that defaulting would be "catastrophic" is pretty much on the mark. If the United States were to let its loan obligations lapse, a kind of domino effect would ensue, weakening the dollar and badly damaging creditors' portfolios. Destroying America's credit rating would also make it much harder for the country to continue borrowing money -- which it needs to do in order to keep running the government. It would essentially put the U.S. in the company of debt-wracked countries such as Greece, Mexico, and Argentina, which have struggled to regain the confidence of the international community after struggling to face down their own debt crises.

Is raising the debt ceiling common?
Extremely. Since World War Two, Congress has voted 73 times to raise the ceiling. The White House and Congress alike have treated the matter as a routine part of keeping the government functioning.

Isn't this all about politics?
Well, yes and no. On one side, congressional Republicans are in a tight spot. They know their tea party supporters badly want them to cut government spending, and as part of that effort are pressing them to take a hard line on the debt ceiling. Some GOP lawmakers are saying they're open to raising the ceiling, but only in return for spending cuts. The danger is that if they drive too hard a bargain, they could help trigger a default or government shutdown. And if the past is any guide, the public could hold them responsible.

On the other side, the Obama administration has equally little room to maneuver. White House officials know that breaching the debt limit would likely be a terrible calamity, as Goolsbee said. But if the administration agrees to far-reaching spending cuts as the price for raising the ceiling, that could potentially stifle the burgeoning recovery, and make life harder for millions of struggling Americans.

So what's likely to happen in the end?
When all is said and done, Congress will almost certainly raise the debt ceiling again some time next month, and thereby avoid a default. But to win GOP support, the White House will likely have to agree to enact at least some cuts to social programs. And those cuts may be enough to wipe out any stimulative effect from the recent Obama-GOP tax cut deal.

Then can we at least stop talking about the debt ceiling?
Probably not. Whatever it gets raised to, we'll likely hit the new limit in the next few years, if not sooner. Then we'll be having this argument all over again.


Till debt do us part: The showdown over the debt ceiling
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