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How Not Increasing the Debt Ceiling Could Ruin Your Life

Politicians in Washington are currently negotiating a continuing resolution to fund the government. It's a big deal, but it's almost small compared to the next fiscal fight – the debt ceiling.

 

(Photo Credit: woodleywonderworks/Flickr)

While a government shutdown would directly impact millions of Americans, especially federal workers, a United States default on its debt would likely negatively impact almost all Americans.

Hold on, what exactly is the debt ceiling?

Good question. The debt ceiling is the amount of debt the United States Treasury can issue to pay for outstanding obligations. Simply, it's the United States' credit line.

The U.S. currently has a debt ceiling of approximately $16.7 trillion. That limit was breached in May, but with some "extraordinary measures" the Treasury has been able to continue to pay the country's bills. But by late October or early November, if the limit isn't increased, the Treasury will run out of clever accounting tricks and the United States will go into default, which has never happened before.

So if the debt ceiling isn't increased what happens?

Nobody knows for sure, which is what makes economists extremely uneasy, though everyone agrees it would be bad.

Thinking positively, the government would still be able to make payments on some of its obligations and that could please financial markets for a short period of time. But if markets turn on the U.S., and borrowing costs increase significantly, the economy will likely suffer immensely.

Earlier this year, during the last debt-ceiling scare, this is the picture Slate's Matthew Yglesias painted of what happens if U.S. enters default.

"If the government can’t pay its bills on time, then some of the people to whom it owes money—whether that’s a construction company, a grandma on Social Security, a doctor treating Medicare patients, a public school expecting Title I funding, a student awarded a Pell Grant, whatever—won’t be able to pay their bills on time."

Yglesias continues, "That’s going to mean a rise in missed payments on mortgages, car loans, and credit cards. That means bank failures and sharply reduced credit availability even for people who aren’t specifically counting on a check from Uncle Sam. Debt financed investment—construction projects, vehicle purchases, small business expansions—will likely grind to a halt as nobody wants to lend out new money until they’re sure they’re getting paid what they’re already owed. That will create a secondary collapse in incomes, and an additional wave of business and citizens unable to pay their bills."

That sounds awful, why would politicians let this happen?

President Barack Obama called Speaker John Boehner last week to let him know he isn't negotiating over the debt limit. Congress just has to increase it.

House Republicans, not surprisingly, disagree, and say they are willing to increase the limit only if Affordable Care Act (Obamacare) is delayed for a year, the Washington Examiner reports.

So someone has to blink. One might think the potential consequences of default are so serious politicians will have to raise the debt ceiling. But this is Washington, where reason doesn't always win.

Tell Us What You Think?

Would you be in favor of delaying Obamacare for a year to increase the debt ceiling? Share your advice on Twitter or in the comments section below.

6 Comments

  1. 6 Wendy French 15 Oct
    If you max out your credit card it is never wise to increase your limit (or get a 2nd credit card) and again max it out, but that is exactly what our government has been doing. Enough is enough. 
  2. 5 Wendy French 15 Oct
    If you max out your credit card it is never wise to increase your limit (or get a 2nd credit card) and again max it out, but that is exactly what our government has been doing. Enough is enough. 
  3. 4 dustin 04 Oct
    Get rid of Obamacare - We can't afford the debt we have now.  Its a simple concept, if what you make isn't greater than what you spend.. then cut back spending! Obamacare is only adding to our costs as is!  Higher premiums, loss of insurance plan options, and we are being forced to pay for coverage that we don't even need. If you can't physically have a baby why do you have to pay for a plan that includes maternity coverage! Sorry for the rant, but to suffice, my vote is delay and terminate obamacare.  Thank you for your article!
  4. 3 Maryann 04 Oct
    Delay Obamacare-
  5. 2 Patrick 25 Sep
    Thanks Lydia.
  6. 1 Lydia 25 Sep
    Really nice piece Patrick!

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