The debt ceiling is one of those things that seem important, many people have an opinion about, but few of them actually understand. Don’t worry, we have you covered so that the next time your kids ask or your coworkers talk about it at the watercooler, you will at least know the basics.
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The debt ceiling is one of those things that seem important, many people have an opinion about, but few of them actually understand… like the Bible, or science.
Don’t worry, we have you covered so that the next time your kids ask or your coworkers talk about it at the watercooler, you will at least know the basics.
What Is the Debt Ceiling?
The debt ceiling, or debt limit, is the total amount of money the US government is allowed to borrow. Because the US government, no matter who is in charge, loves to borrow money (those shiny missiles don’t pay for themselves), it has to be raised frequently (on average more than once per year since the 1960s).
If that does not happen, global economic doom looms.
In other words, the US has flirted with disaster dozens of times, crossed its fingers, and hoped that America’s best and brightest in Congress will do the only logical thing before the car goes off the cliff.
So why even have a debt ceiling when it just keeps getting raised every time? That is an excellent question. Most other countries do not and it doesn’t really make sense. But the US likes to do things differently (like not offering good healthcare or rejecting the metric system).
In any case, usually, cooler heads prevail, and Congress averts a global catastrophe.
Now, however, there is a shortage of cooler heads in Congress, which brings us to why the US is now a scant 10 days away from reaching that ceiling and defaulting on its debt.
Why Is This a Bad Thing?
Another good question, especially since not meeting your financial obligations is now the price people pay (or rather, do not pay, to be exact) to achieve the American dream. Whether they got an overpriced college degree, a house they couldn’t afford, a $5-million MRI, or they somehow couldn’t profitably run a casino, many Americans go bankrupt.
When that happens, life goes on. If you are rich, a bank will give you more money, if you are poor, they will take away your stuff.
However, when the US government can’t pay its bills, it’s a much bigger deal. That’s because of where the money goes.
A huge chunk of it has to be paid to the people who hold the US debt, which currently exceeds $31 trillion. To keep borrowing money, the US is issuing bonds. In the past, that seemed like a great investment because you could earn interest but didn’t have to worry about not getting your money back. Because, like the Lannisters in Game of Thrones, the US always pays its debts.
That is why US Treasury bonds are highly rated.
However, because some of these bonds become due every day and must be paid, and because people are owed interest on their investment all the time, once the government can’t make those payments, the US might lose their gold star for being a safe bet.
When that happens, perhaps as early as June 1, then all hell may break loose (nobody really knows since it seemed unfathomable that this would happen, but that’s what the experts tell us).
Certainly, it seems likely that the cost of borrowing money for the US would go up, which is not great when you love spending beyond your means.
A good way of explaining it is to look at what credit card companies do when you miss your payments. All of a sudden, you have to pay a higher rate. Now multiply that times a billion, and you see how this becomes a problem.
In addition to meeting its obligations to its investors, the government also has to make payments to people like the US military or retirees, but, let’s not kid ourselves, it’s mostly about the investors since this isn’t an election year.
On a serious note: It’s hard to see how military personnel or seniors won’t get paid even if the June 1 deadline passes. They vote. So, it stands to reason that, if the US government owes you money, you will still get it and other payments will be deferred first.
And, because the United States is kindof a big deal in the world economy, the experts predict that a default could lead to an economic tsunami whose waves reach every other country.
Can I Blame [Insert Name of Your Political Opponents]?
Of course you can! After all, this is what the current fight is all about.
If you are on Team MAGA, then it’s obviously President Joe Biden’s (de)fault. If he would only agree to some “modest” spending cuts (and some other measures that would disproportionately affect Democratic voters), everything would be fine.
If you are on Team Biden, then you can complain about Republicans holding the economy hostage by refusing to increase the debt limit with no strings attached (like they did multiple times when Donald Trump was in office).
What Is Up With the Fourteenth Amendment?
You may have heard some talk about the 14th Amendment and that it could be used to stave off this economic disaster.
Some Democrats argue that, instead of humoring the part-time fiscal conservatives in the GOP (because they only care about debt and deficit when a Democrat is in the White House) and the vast MAGA wing of the Republican Party, which apparently just wants to burn the US to the ground if that is something that pisses off the libs, Biden should simply use authority he already has to avert this impending disaster.
They point to Section 4 of the 14th Amendment, which says: “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.”
Their argument is that it would be unconstitutional for Biden to stop making debt payments and therefore the debt ceiling doesn’t matter at all.
Is that true? Who knows? We are entering uncharted territory.
However, while we are not betting people, it seems possible that Biden will go this route instead of dealing with House Republicans and their demands.
They won’t like that, of course. But, at the very least, it buys Biden some time. And, whoever ends up taking the administration to court over this on constitutional grounds will own the default if they prevail. And then they will own this economic disaster, and Democrats can wash their hands of this mess.
*This seems antiquated, but it makes sense that money should be available to put down the next insurrection since we just had one a couple of years ago. Maybe this was the plan of the GOP all along: make sure the US government does not have the money to stop their next attempt to overthrow it.
