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Stumped by the debt ceiling? Here’s an explainer
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Q. WHAT IS THE DEBT LIMIT?
It is “the total amount of money that the United States government is authorized to borrow to meet its existing legal obligations, including Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and other payments,” the Treasury Department explains.
Basically, Congress appropriates money for projects and programs, then lawmakers have to give the executive branch permission to pay those bills.
Q. OK. BUT WHAT IS THE ACTUAL DEBT LIMIT (IN DOLLARS)?
After it expires on Friday, February 7, 2014, the Treasury Department will use what are called “extraordinary measures” to keep the government solvent for as long as it can. The government can move money around. It can defer investments in certain intragovernmental accounts, better known as trust funds. These include the Thrift Savings Plan, for government employees; the Exchange Stabilization Fund; and the Civil Service Retirement and Disability Fund.
The department already suspended sales of State and Local Government Series (SLGS) nonmarketable Treasury securities “until further notice.”
Q. WHEN DO THESE “EXTRAORDINARY MEASURES” RUN OUT?
Treasury Secretary Jack Lew predicts this will happen by the end of February.
“At different times of the year, these extraordinary measures provide more or less of a cushion depending on variables that we cannot control,” he says. In February, Americans are beginning to file their taxes, and the Treasury Department is cutting a lot of refund checks.
The Bipartisan Policy Center tracks this closely, and it predicts “approximately $198 billion of extraordinary measures will be available at this time.”
Q. I’M HEARING PEOPLE TALK ABOUT AN “X DATE.” WHAT IS THAT?
The “X Date” is when those “extraordinary measures” run out. At that point in time, the government will no longer be able to pay its bills.
The Bipartisan Policy Center forecasts that will fall between February 28 and March 25. It is hard to be more specific, because you can’t know in advance how much money the government is going to take in and how much money they government is going to pay out.
Q. WHAT WOULD HAPPEN THEN?
I’m only half kidding.
The government, which makes millions of payments every day, wouldn’t be able to make good on all of them. It could default on Treasury bonds. Economists and investors predict that would lead to a huge downturn.
Q. COULDN’T THE GOVERNMENT PRIORITIZE PAYMENTS, JUST PAY SOME BILLS BEFORE OTHERS?
The Treasury Department has maintained that this would be both impossible and legally dubious. As New York magazine’s Kevin Roose notes, “The problem is that there aren’t really any less-important things included in the Treasury’s regular payment schedule. It’s all stuff like food stamps, Social Security, military pay, unemployment benefits, and federal worker salaries. So these choices would be really, really painful.”
Q. WHY DOES THE U.S. HAVE A DEBT LIMIT?
“Congress used to approve borrowing project-by-project,” Marketplace’s Nancy Marshall-Genzer explains. “Eventually, that incremental budgeting got too cumbersome.”
The first limits on borrowing were imposed during World War I. The Second Liberty Bond Act of 1917 set a $15 billion limit on government bonds.
“That set the precedent for giving the Treasury Department a cap,” says Donald Ritchie, who runs the Senate Historical Office. In 1939, Congress set a limit on debt of all kinds.
“This measure gave the Treasury freer rein to manage the federal debt as it saw fit,” the Congressional Research Service says.
Q. HAS IT ALWAYS BEEN SO CONTROVERSIAL?
Until the 1970s, it wasn’t, really.
Amendments to the Second Liberty Bond Act “were not partisan,” says Richard McCulley, an historian with the Center for Legislative Archives. “They were supposed to help the Treasury Department manage the federal debt. … That has morphed into this incredible headache for the Treasury now.”
Q. HOW MANY TIMES HAS THE GOVERNMENT RAISED THE DEBT LIMIT?
“Since 1960, Congress has acted 78 separate times to permanently raise, temporarily extend, or revise the definition of the debt limit – 49 times under Republican presidents and 29 times under Democratic presidents,” the Treasury Department says.
According to the Senate Historical Office’s Donald Ritchie, this is always “a burden on the majority party.”
“Nobody likes to increase the debt limit, even though it reflects what they have already authorized and appropriated,” he says. “They don’t like to do it. They never have liked to do it. But you have to. It’s a responsibility – the fiscal responsibility – of the federal government.”
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