By Ryan Long
As the debate rages on over how to solve the government shutdown debacle, another crisis looms: the debt ceiling.
If Congress doesn’t vote to increase the borrowing limit by October 17, according to Treasury Secretary Jacob Lew, the government will be unable to pay its bills for the first time in history. Currently, the U.S. is authorized to borrow $16.7 trillion dollars, an amount that has already been exceeded. Stopgap measures have allowed for an extended deadline, but the grace period will draw to a close within one week.
Failure to reach an agreement will put a stop to Social Security payments, affect international credit, and severely impact the value of the dollar. Treasury bond interest rates, which play a significant role in setting rates on mortgages, credit cards and student loans, would be heavily affected. Consumers and businesses would find borrowing more difficult and costly.
The debt ceiling was first put in place in 1917 in order to cap spending on World War I, but it has been raised more than 80 times since. In August 2011, the last time lawmakers battled over the federal debt limit, stock indexes fell, hiring slowed and the U.S. credit rating was downgraded from AAA to AA+. This affected confidence in the American economy internationally and caused interest rates to fall.
Raising the debt ceiling doesn’t increase the federal budget; it simply allows for the government to spend on the items it already approved that go above the previously set limit. Many, including New Yorker columnist James Surowiecki and Federal Reserve Chairman Ben Bernanke, argue that the debt ceiling is no longer necessary and should be abolished. For now, the tension remains and the race to find a solution continues.
Sources:
http://www.cbsnews.com/8301-505123_162-57606253/debt-ceiling-understanding-whats-at-stake/
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