U.S. about to hit debt ceiling - again

The $12.1 trillion debt ceiling is fast approaching 'over the limit' status. Unless Congress raises it, Uncle Sam won't be able to pay what the country owes.

EMAIL  |   PRINT  |   SHARE  |   RSS
 
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By Jeanne Sahadi, CNNMoney.com senior writer

chart_debt_limit.03.gif
Ranking the rescues
The collapse of Lehman led to a deeper recession and a litany of government programs to try to end the pain. We rate just how bold and effective the plans have been so far.

NEW YORK (CNNMoney.com) -- Congress has raised the debt ceiling four times in the past two years and will probably have to do it again in the next month.

With the government borrowing record amounts of money, the nation's current debt ceiling of $12.1 trillion will be pierced soon.

That ceiling is the cap on how much the country allows itself to have in debt. In credit card parlance, the ceiling is the U.S. credit limit. At the end of August, U.S. debt totaled $11.8 trillion. That's roughly $349 billion shy of the statutory limit.

The ceiling is meant to serve as a brake on spending because lawmakers would have to think very seriously before they breach the limit and take a very difficult political vote to do so. In reality, lawmakers really don't have a choice but to raise the ceiling and they know it.

Put simply, if they don't raise the ceiling, the country will go into default on its debt. The domino effect would be painful, to say the least.

Treasury bonds would come due but the Treasury wouldn't have the authority to borrow more money to pay holders of those securities.

The government might be able to come up with some cash by, for instance, borrowing from the federal employee retirement trust fund.

The Treasury Department also said Wednesday that it was taking steps to "preserve flexibility" in how it manages its debt. It will reduce the amount of money in its financial rescue reserve -- essentially setting aside cash in the event that lawmakers don't raise the ceiling in a timely manner.

But such measures can only stave off the inevitable temporarily. After Treasury exhausts its options, barring an increase in the ceiling, the value of U.S. bonds, would sink, jeopardizing the portfolios of countries and investors around the world who invest in U.S. debt.

"Our credit as a nation would plummet immediately and throw the world economy into a depression," said Charles Konigsberg, chief budget counsel for The Concord Coalition, a deficit watchdog group.

In the hands of Congress

The debt ceiling was implemented decades ago. Lawmakers have raised it 90 times in the past 69 years, according to data from the Office of Management and Budget.

Earlier this year, the House passed a joint resolution that would raise the debt ceiling to $13.029 trillion for fiscal year 2010. The Senate has yet to weigh in.

While lawmakers are almost certain to support an increase, the issue is expected to spark a firestorm on the House and Senate floors.

That's because the statutory debt limit is more of a political hammer used most often by whichever party is in the minority to blame the majority for the soaring debt. Konigsberg said he expects the debates in all likelihood to be "0% substance and 100% politics. It comes down to two parties arguing about who's responsible for the debt."

But one quid pro quo that fiscal conservatives might propose is an amendment to create a deficit reduction commission, which is an idea that could generate bipartisan support, he said.

In any case, the debates over the debt ceiling may be particularly heated because of the unprecedented government interventions that were launched in the past 18 months to curtail the financial and economic crises.

A debate over the debt ceiling will also intersect with the fight over health care reform, which could cost as much as $800 billion to $1 trillion over the next decade. To top of page

Features
They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
50 years of the Ford Mustang Take a drive down memory lane with our favorite photos of the car through the years. More
Cool cars from the New York Auto Show These are some of the most interesting new models and concept vehicles from the Big Apple's car show. More
8 CEOs who took a pay cut in 2013 Median CEO pay inched up 9% in 2013 to $13.9 million. But not everyone got a bump last year. Here are eight CEOs who missed out. More
Sponsors
Worry about the hackers you don't know 
Crime syndicates and government organizations pose a much greater cyber threat than renegade hacker groups like Anonymous. Play
GE CEO: Bringing jobs back to the U.S. 
Jeff Immelt says the U.S. is a cost competitive market for advanced manufacturing and that GE is bringing jobs back from Mexico. Play
Hamster wheel and wedgie-powered transit 
Red Bull Creation challenges hackers and engineers to invent new modes of transportation. Play

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.