Mannequin holding red word Debt

TEXT OF STORY

Kai Ryssdal: I saw a study this morning that gave me pause. A poll by the Tarrance Group -- which has worked with a lot of Republican politicians -- shows big majorities of Americans -- upwards of 60 percent -- have no idea where the government spends most of its money.

The government gets a lot of the money it spends by borrowing. And pretty soon, that ability to borrow -- the debt ceiling, it's called -- is going to run out.

Our Washington bureau chief John Dimsdale explains the next big hiccup coming for the federal budget.


John Dimsdale: The debt ceiling limits the government's authority to borrow money. Congress has currently set it at $14.29 trillion. The U.S. could hit the limit as early as April.

Some lawmakers think it's time to draw the line and stop government borrowing. But lots of economists say that would be a catastrophe, since the government couldn't pay the interest it owes holders of existing debt. The U.S. would be defaulting on what are supposed to be ultra-safe Treasury bonds.

Fed chairman Ben Bernanke warns that's a dangerous prospect.

Ben Bernanke: If the United States defaulted, it would have extraordinarily bad consequences for our financial system, and it would mean that we would face higher interest rates essentially indefinitely because creditors wouldn't trust us to make our interest payments.

Without that trust, investors might bolt and the U.S. would have to pay higher interest rates. University of Texas economist James Galbraith says all Americans would feel the pinch.

James Galbraith: It would weaken the position of the United States in world financial markets and it would tend to affect the standard of living of Americans as well because it might push the dollar down.

The only way to avoid raising the debt ceiling is to run a balanced budget. Otherwise, the U.S. has to keep borrowing to make interest payments on the debt it already has.

In Washington, I'm John Dimsdale for Marketplace.

About the author

As head of Marketplace’s Washington, D.C. bureau, John Dimsdale provides insightful commentary on the intersection of government and money for the entire Marketplace portfolio.

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