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Congress ended the fight over the debt ceiling last Thursday, raising it to a limit that is expected to be hit again in February. But what is the debt ceiling, and why is it such an important issue?
The debt ceiling is a limit on the amount of money that the federal government can borrow. According to the U.S. Department of the Treasury, the federal government borrows money from individuals, corporations, local and state governments, Federal Reserve Banks and foreign governments and entities.
When the borrowing limit or “ceiling” is reached, Congress and the President must agree to raise the debt ceiling in order to keep borrowing. Raising the debt ceiling does not mean raising the debt itself. It means raising the limit on how much money we are allowed to borrow.
The reason we need to borrow money at all is that only about 54 percent of what the federal government spends is money from revenue, or money the government collects from taxes. The remaining 46 percent comes from money that is borrowed.
That’s why raising the debt ceiling is such a hot issue: If we wait until the government hits the limit, and then proceed not to raise the limit, the federal government would have to choose between cutting spending from certain obligations or fail to pay interest to its loaners. Those obligations include paying Social Security, Medicare and Medicaid benefits, as well as paying military salaries to citizens who need them.
The issue frightens me because no one knows for sure what will happen if the debt ceiling isn’t raised. It’s a political no man’s land. Failing to raise the debt ceiling is unprecedented.
When Congress argues it prolongs a long-term solution, it has the potential to destabilize the economy because world markets begin to worry. Even the potential threat of the U.S. default — that is, being unable to guarantee that it will pay interest on its debt — means that banks and credit markets around the world wouldn’t be able to borrow from each other in the same way. The U.S. dollar would be seen as less dependable, thus lowering the value of the dollar and raising the cost of borrowing money if the debt ceiling is raised.
Last week, some Congressional Republicans objected to raising the debt ceiling unless Democrats agreed to lower spending by cutting entitlements, or mandatory spending programs such as Social Security, and repealing the newly implemented health care law commonly known as Obamacare. Both parties are for cutting spending in the abstract, but most Democrats oppose cutting Social Security and the repeal of any aspect of Obamacare.
Republicans’ desire to cut spending from entitlements is one thing, but it should have absolutely nothing to do with the debt ceiling. Both parties are for reforming the budget, but the way to do that should be through debate and compromise. Standing in the way of the debt ceiling being raised isn’t changing the federal budget, it’s just making Republicans look like children throwing tantrums. This nation can’t afford another debt ceiling scare.
If Republicans want to reduce the deficit and slow the growth of our debt, they shouldn’t be wasting time stalling this vital aspect of their jobs. I think the only way to lower the budget deficit and thus slow the growth of our debt is to reasonably negotiate changing the spending laws that are already in place.
Playing games with the debt ceiling, as Republicans learned again last Thursday, is not the way to reduce the deficit.
Contact CU Independent Staff Writer Ellis Arnold at Ellis.arnold@colorado.edu.
