The Debt Ceiling, a Default, and Why do They Matter?

The Debt Ceiling, a Default, and Why do They Matter?

If the government is no longer able to borrow and has run out of money to pay all the bills due, a default is reached. This would be caused by Congress not raising the debt ceiling. The debt ceiling is the amount of money the US Treasury can borrow, as set by Congress. Every year it is raised because the US doesn’t have enough money to pay it’s current bills in full. The president asks the Congress to do this and they have always acquiesced. This year because of the current standoff, there is a chance that when the president asks Congress to raise the ceiling, they could deny it due to internal fighting. Primarily the holdup this year is the Affordable Care Act because neither side (Republicans or Democrats) can come to a compromise on how to fund it. This is what caused the initial shutdown, but most sources agree a default would cause a far larger panic than the shutdown.

It is estimated that a default would be reached (the US Treasury would run out of money) on October 17^th. (Popper, 2013) A default has never been reached before in American history, so the damage, problems, and situation it would cause is unknown.

Spelled out, this situation would essentially mean that the US cannot be trusted to pay back, or attempt to pay back, their debts. Considering the size and extent of the US market, it’s essential collapse could affect countries worldwide. For Americans, this means huge uncertainty in everything economically related, from the value of the US dollar to the interest on credit cards..

Sources:

Popper, Nathaniel. Wall Street Uneasy in Face of Government Shutdown. DealBook.  Web New York Times, 29 Sep. 2013. Web. 20 July 2010. <http://dealbook.nytimes.com>