Marketplace Whiteboard®

Obama & the debt ceiling: An explainer

Paddy Hirsch Sep 26, 2013

The debt ceiling — or the debt limit, as the Treasury calls it — is quite simply the amount of money that the government is legally allowed to borrow.

Every year, the Congress decides how much it’s going to spend — that’s the budget. And depending on what it puts in the budget, the government gets a load of bills in the mail every month. Just like every American does. The U.S. government’s bills are quite a bit bigger: it has to pay its employees; it has to pay its contractors; it has to pay for the stuff that its buys; and it has to pay the interest on its debt.

The arm of the government that makes those payments is the Treasury. It uses the money that the government collects in taxes to pay most of the bills. And if it hasn’t got enough money, then it borrows some more to make up the difference. Again, like an American would do with a credit card.

But the Treasury’s only allowed to borrow up to a certain amount. And it’s credit limit — the debt ceiling — is decided by Congress. If it needs to borrow more, it has to get permission to do so.

That’s right — it’s Congress that decides the amount we can spend, and it’s Congress that decides the amount we can borrow. Right now, those amounts aren’t matching up. And if Congress can’t get them to match, then some of those bills aren’t going to get paid.

And that’s a problem.

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