What is the Debt Ceiling and Why You Should Care About It.

That’s the title of this ABC News report. I don’t know a lot about this topic, so I sought out some information. Here’s what I learned:

The debt ceiling is a cap on the amount of money the U.S. government can borrow to pay its debts.

Every year, Congress passes a budget that includes government spending on infrastructure, programs such as Social Security and salaries for federal workers. Congress also taxes people to pay for all that spending. But for years, the government has been spending more than it takes in from taxes and other revenue, increasing the federal deficit.

The government needs to borrow money to continue paying out what Congress has already OK’d. The debt ceiling puts a limit on how much money the U.S. government can borrow to pay its bills.

That seems fairly clear, but I’m confused about on the following point:

Democrats and others (like Janet Yellen, the current Treasury Secretary) claim that raising the debt ceiling doesn’t mean an increase in new spending. They say this because the Congress and the president has already approved the spending. Since the government revenue (i.e., money collected from taxes) falls short of the approved budget, a deficit will be created–or the government will fail to pay for what they agreed to pay for in the budget. Some of this is government (discretionary?) spending, but other items include “mandatory payments, interest on our debt and payments to U.S. bondholders.” The claim is that not paying for this (non-discretionary?) spending, which would be tantamount to defaulting on a loan, would be devastating to the U.S. and possibly the world economy. It has never happened before.

The article goes into specifics of the possible consequences, but I’ll just mention one–which relates to a delay in raising the debt ceiling:

Moody’s Analytics has estimated that even a long impasse over the debt ceiling could cause the loss of nearly 6 million jobs, increase the unemployment rate to 9% (from 5.2% now) and cause the stock market to lose about a third of its value, wiping out $15 trillion in household wealth.

My understanding is that a faction of House GOP members are threatening to vote against raising the debt ceiling in order to get spending cuts. Some have described this as holding the US economy hostage. That seems like a fair characterization to me, and it’s too reckless and irresponsible.

One thought on “What is the Debt Ceiling and Why You Should Care About It.

  1. From Ron Brownstein in theAtlantic, a good look at the most recent fights of raising the debt ceiling, during the Obama administration, which explains Biden’s current approach.

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