Maxing Out Debt Ceiling Would Lead to Economic Turmoil

Maxing Out Debt Ceiling Would Lead to Economic Turmoil

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In what many have deemed the Great Recession, American citizens have grown accustomed to  ‘past due’ notices.  Others have learned to disguise their voices when debt collectors come calling, or have taught even the youngest member of the household to lie, “My parents aren’t home.”

Despite the economic straights many American find themselves in, however, they keep on spending.

Well, it’s no wonder when the the very country they call home will soon have debt collectors calling to collect on past due notices — we’re talking about America’s “debt ceiling.”

Today, the United States has $13.95 trillion in outstanding debt, with a debt ceiling of $14.29 trillion. As reported by CNN, Treasury Secretary Timothy Geithner told congressional leaders Monday that he now expects U.S. debt to hit the country’s debt ceiling “no later than May 16.”

But what will that mean exactly?  Well if measures aren’t taken to avoid this economic crisis, then the effect will be as if the United States has maxed out it’s credit cards, defaulted on its loans and can’t meet payroll.

Geithner warns,

If Congress failed to increase the debt limit, a broad range of government payments would have to be stopped, limited or delayed, including military salaries and retirement benefits, Social Security and Medicare payments, interest on the debt, unemployment benefits and tax refunds.

In addition to turmoil at home, global markets will be affected and confidence in the U.S. to pay its debts will be low. The costs to borrow will increase and most likely remain that way as America will be seen as too risky to lend to.

But what can be done before May 16th?  The Congressional Research Service estimates that the government will need to borrow $738 billion between now and the end of this fiscal year. So, unless lawmakers choose to raise the ceiling, they will need to come up with that amount of money either through spending cuts, tax increases or some combination of the two if the country is going to continue to pay its bills in full.

The problem is that just as Democrats and Republicans can’t agree on a federal budget, there is also dissension as to whether to raise the ceiling or not.  The ceiling has never been reached before, but some lawmakers are threatening to vote against an increase in the debt ceiling, supposedly in the name of fiscal responsibility.

While it seems irresponsible for elected officials to not raise the ceiling, it does leave us wondering when enough is enough?  How much debt can America actually go into before the bottom falls out?  And lastly, how does the federal government expect its citizens to be fiscally responsible when it can’t be?

1 COMMENT

  1. Essentially… the U.S. gov't is already maxed out. The most expedient fix — again raising the debt limit — is probably the best option to choose given the sclerosis affecting Congress. It's important to note debt isn't the question per se as much as whether the money's use will generate an economic and/or social return. For example, spending an additional tens of billions on Iraq and (to a lesser degree) Afghanistan, IMO, would qualify as a bad expenditure; spending to shore up education would qualify as a good expenditure.

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