With little time to recover from the eleventh-hour budget agreement that averted a government shutdown, Congress will soon be forced backed to the bargaining table as the Nation comes closer to its statutory debt ceiling of $14.3 trillion – the current legal limit on how much money the United States can borrow.
The national debt, the total amount of funds that the Federal Government has borrowed over the years and not repaid, is not to be confused with the Federal deficit, which is the amount the government spends each year over what it takes in. For background, see “The Deficit and the Debt,” Congressional Digest, February 2010.
The limit applies to both publicly held debt (what the government owes Americans and the rest of the world in bonds and securities) and internal debt (what the government owes its own accounts in trust funds, including Social Security, Medicare, Transportation, and Civil Service Retirement).
To put the current situation in perspective, in the past, raising the debt limit has been a routine event. Congress has done so 74 times in the last 50 years. And according to the Congressional Research Service, the United States has been free of a national debt for only two years – 1834 and 1970. But the Nation has never owed so much money before – $14.267 trillion, as of April 11, according to the Treasury Department, and rising an average of $125 billion per month.
What If the United States Defaults?
In a letter to Congress, Treasury Secretary Timothy Geithner predicted that the United States will hit the debt ceiling by May 16. At that point, the Treasury Department could take certain “extraordinary measures … to temporarily postpone the date that the United States would otherwise default on its obligations.” These actions would be unavailable after about July 8, however, at which point the government would be unable to meet its commitments.
What would happen next? No one knows for sure because no country the size of the United States has ever defaulted on its debt, but Austan Goolsbee, Chairman of the U.S. Council of Economic Advisors, says the “impact on the economy would be catsastrophic.” “If we get to the point where we damage the full faith and credit of the United States, that would be the first default in history caused purely by insanity.”
Will Congress Act in Time?
Conservatives in Congress are expected to attempt to exact some demands from the White House, including deficit reduction measures, in exchange for votes on increasing the debt limit – which in turn could lead to another fiscal showdown. Many analysts predict, however, that in the end, cooler heads will prevail, the debt limit will be raised, and Congress will move on to the next big budget debate.