Government spending will hit the federal debt ceiling soon if Congress doesn’t vote to raise it. A political fight lies ahead as newly-empowered Republicans vowing to cut spending threaten to vote against raising the debt ceiling. However, if the debt ceiling is hit, the U.S. government goes into default and the global economy could be crippled.
Inside the federal debt ceiling
The federal debt ceiling, the amount of money the government is legally permitted to borrow, is $14.3 trillion. Government debt has reached about $13.9 trillion and it’s growing every day. With the debt ceiling “only” $335 billion away, the Treasury Department estimates that limit will be reached somewhere between March 31 and May 16. The debt ceiling applies to debt owed the public in the form of U.S. bonds and debt owed to government trust funds such as those funding Social Security and Medicare.
Consequences of hitting the debt ceiling
Regardless of Republican rhetoric about spending cuts, raising the debt ceiling has nothing to do with spending more money. The debt ceiling needs to be raised now because of legislative decisions already made, primarily during the Bush administration. On Thursday Treasury Secretary Timothy F. Geithner warned lawmakers that if they would not raise the debt ceiling, borrowing costs would rise for federal, state and local governments, as well as for businesses and consumers. Millions of jobs would be lost and stock prices, home values and retirement savings would plummet.
A golden opportunity to score political points
House Speaker John Boehner said Congress can’t raise the debt ceiling without more spending cuts. House Republicans have said they would blackmail the Senate and the White House by only voting for a higher debt ceiling in exchange for returning the federal budget to 2008 levels. But refusing to raise the debt ceiling is like refusing to pay one’s bills. Most analysts expect House Republicans to experience a brief flash of common sense when its time to vote. An economist told Bloomberg that raising the debt ceiling, however painful the vote, is merely a chance to score political points.