Useful resources and debt ceiling pdf guides included at the end of this post
You’ve probably heard the term “debt ceiling” thrown around a lot lately, especially during political debates. But what exactly is it, and why does it keep causing so much drama?
What is the Debt Ceiling?
Think of it as a credit limit set by Congress. It’s the maximum amount of money the U.S. government can borrow to pay its bills. This includes things like Social Security, Medicare, and paying interest on the national debt. In practice, it’s more of a concept than an actual rule.
Parties like to use it when they aren’t in power to get things they want by threatening a government shutdown if the other side doesn’t agree to their demands. It’s just a concept because no one actually believes that if the limit were to be reached, the United States government would just not pay back what it owes.
That’s why Democrats have been pushing to eliminate it for years. It has no purpose in reality other than being used to negotiate through “hostage-taking.” Republicans are against getting rid of it because they use it often when they aren’t in power. Surprisingly, Donald Trump is in favor of eliminating the debt limit as well.
From reporting by NBC News:
“The Democrats have said they want to get rid of it. If they want to get rid of it, I would lead the charge,” Trump added.
Trump suggested that the debt ceiling is a meaningless concept — and that no one knows for sure what would happen if it were to someday be breached — “a catastrophe, or meaningless” — and no one should want to find out.
“It doesn’t mean anything, except psychologically,” he said.
How Does it Work?
When the government spends more than it takes in through taxes, it borrows money to make up the difference. This borrowing is done through the issuance of Treasury bonds.
However, Congress sets a limit on how much the government can borrow. When the government reaches this limit, it can’t borrow any more money.
That’s when Congress needs to go through a process known as “the raising of the debt ceiling.” That means if they don’t raise it, the country will default on its debt and our credibility and trustworthiness plummets.
Why is it a Problem?
The problem arises when the government reaches the ceiling and Congress fails to raise it. This can lead to a government default, which means the government can’t pay its bills. A government default would have serious consequences for the U.S. economy and the global financial system.
Whether or not this would actually happen is up for debate. Think of it as a worst case scenario.
How Republicans Have Used the Debt Ceiling
Republicans in Congress have often used the threat of a government default to pressure Democrats into making concessions on spending cuts or other policy issues. This tactic is known as “debt ceiling brinkmanship.” By refusing to raise it unless their demands are met, Republicans can force Democrats to negotiate on their terms.
is the US debt ceiling High Enough right now?
From Erin Meade, policy communications director at the Bipartisan policy center:
“The federal debt limit will be reinstated on January 2, 2025, at a level covering all borrowing since its suspension on June 2, 2023. Immediately upon reinstatement, the Treasury Secretary will begin deploying extraordinary measures and relying on existing cash on hand to continue paying the federal government’s bills. Based on the latest information available, BPC projects that these resources will likely be sufficient to finance the government’s obligations beyond tax season and, therefore, that the X Date—when the Treasury Department’s resources are exhausted and the government would default on its obligations—is likely to arrive sometime later in 2025.”
The Impact of Debt Ceiling Showdowns
These debt ceiling showdowns can have a negative impact on the economy. They can lead to increased uncertainty, which can discourage businesses from investing and hiring. They can also lead to higher interest rates, which can make it more expensive for businesses and consumers to borrow money.
The current showdown is getting more attention than usual because it’s happening right before Christmas. Kids won’t be able to track Santa using NORAD if the government shuts down!
It’s important to remember that the debt limit is a political issue, not an economic one. While it’s important to address the nation’s debt, doing so through risky political gamesmanship is not the answer.
Let’s hope that the current negotiations on the debt ceiling are handled responsibly and in the best interests of the American people. (I know. I could barely type that sentence because I was laughing so hard.)
Resources
Here is a pdf that covers every detail of the debt ceiling, including the current negotiation in Congress.
Learn about the Federal Reserve and what it actually does.
