A debt ceiling has existed since 1917. Before that, Congress had to provide its stamp of approval each time the Treasury Department wanted to sell US debt to raise money. (Here's a wonky history of the debt ceiling [PDF], courtesy of the Congressional Research Service.) Putting a borrowing limit in place gave the federal government more flexibility to fill its coffers without going to Congress over and over. Lawmakers in Congress have raised the debt ceiling on many occasions, including eight times in the past decade, and Treasury Secretary Tim Geithner has said that failing to raise it and allowing the US default "would shake the basic foundation of the entire global financial system."
What Happens If Congress Doesn't Raise the Debt Limit? In a word: Catastrophe.
At least that's what Geithner told Congress in January. In an ominous letter, he wrote that a US default would wreak havoc on the domestic economy and essentially result in a hefty tax on all Americans.
That's economics 101. If you default on, say, your mortgage or car payment, creditors consider you a bigger risk and as a result, it'll cost more for you to take out loans in the future. The same idea applies here, too, except that everyone—consumers, cities, states, corporations, and the government—will pay higher borrowing costs if the federal government defaults, Geithner says. Not to mention that the government would run out of cash to pay the salaries of federal employees and members of the military, veterans benefits, Social Security and Medicare, unemployment benefits to states, individual and corporate tax refunds, Medicaid payments, and on and on.
What's Happening Now? Congressional Republicans are refusing to raise the debt ceiling without drastic spending cuts. They see the federal government as a reckless spendthrift, running up out-of-control deficits and undermining the integrity of the country. "We are in a debt crisis," said House Majority Leader Eric Cantor (R-Va.). "The American people are expecting us to deliver on our commitment that we are going to change the spending crisis in Washington." With a majority in the House, Republicans can block a debt-ceiling vote until they get what they want—which is a deficit reduction deal heavy on cuts to government spending and light on everything else.
Democrats see the GOP's obstruction as political grandstanding, a dangerous game of chicken that could lead to the US defaulting on its obligations. For months, a bipartisan group of lawmakers and Obama administration officials, led by Vice President Joe Biden, have been working on a deal to shrink the federal deficit, now at roughly $930 billion, in exchange for Republican support to increase the debt ceiling. But those talks broke down in late June over a key element of the negotiations: tax increases. Democrats want new revenue of some kind in the deal, and have floated slashing oil corporation subsidies, worth $21 billion, over ten years; Republicans won't consider any tax increases at all. On June 23, Cantor and Sen. Jon Kyl (R-Ariz.), the number two GOPer in the Senate, abandoned the negotiations because Democrats hadn't taken tax increases off the table.
As a result, the debt ceiling negotiations fell into the lap of President Obama. On June 27, Obama invited Senate Majority Leader Harry Reid (D-Nev.) and Minority Leader Mitch McConnell (R-Ky.) to the White House to work on a debt ceiling deal.
How Do I Follow the Action in Real Time? With the August 2 deadline looming large, we'll be tracking the fight in Washington on a daily basis. You can find the latest developments below. (The first four updates were written in advance and published on the evening of June 28.)
What's Happening Now? Congressional Republicans are refusing to raise the debt ceiling without drastic spending cuts. They see the federal government as a reckless spendthrift, running up out-of-control deficits and undermining the integrity of the country. "We are in a debt crisis," said House Majority Leader Eric Cantor (R-Va.). "The American people are expecting us to deliver on our commitment that we are going to change the spending crisis in Washington." With a majority in the House, Republicans can block a debt-ceiling vote until they get what they want—which is a deficit reduction deal heavy on cuts to government spending and light on everything else.
Democrats see the GOP's obstruction as political grandstanding, a dangerous game of chicken that could lead to the US defaulting on its obligations. For months, a bipartisan group of lawmakers and Obama administration officials, led by Vice President Joe Biden, have been working on a deal to shrink the federal deficit, now at roughly $930 billion, in exchange for Republican support to increase the debt ceiling. But those talks broke down in late June over a key element of the negotiations: tax increases. Democrats want new revenue of some kind in the deal, and have floated slashing oil corporation subsidies, worth $21 billion, over ten years; Republicans won't consider any tax increases at all. On June 23, Cantor and Sen. Jon Kyl (R-Ariz.), the number two GOPer in the Senate, abandoned the negotiations because Democrats hadn't taken tax increases off the table.
As a result, the debt ceiling negotiations fell into the lap of President Obama. On June 27, Obama invited Senate Majority Leader Harry Reid (D-Nev.) and Minority Leader Mitch McConnell (R-Ky.) to the White House to work on a debt ceiling deal.
How Do I Follow the Action in Real Time? With the August 2 deadline looming large, we'll be tracking the fight in Washington on a daily basis. You can find the latest developments below. (The first four updates were written in advance and published on the evening of June 28.)
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Source: Mother Jones
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