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.