The United States just passed a dubious milestone: Government debt surged to an all-time high, passing $14 trillion – $45,300 for every person in the country.
That means Congress soon will have to lift the legal debt ceiling to give the almost maxed-out government an even higher credit limit or dramatically cut spending to stay under the current cap. Either way, a fight is ahead on Capitol Hill, inflamed by the passions of tea party activists and deficit hawks.
Each side is blaming the other for an approaching economic train wreck as Washington wrestles with how to keep the government in business and avoid defaulting on global financial obligations.
Bills that would increase the debt limit are among the most unpopular in Congress, serving as pawns for decades in high-stakes bargaining. Until now, the ending has been the same: We go to the brink before raising the ceiling.
All bets may be off, however, in this charged political environment, despite some signs that the partisan rhetoric is softening after the recent shootings in Arizona.
Treasury Secretary Timothy F. Geithner says that not increasing the nation’s borrowing authority would be “a catastrophe,” perhaps rivaling the financial meltdown of 2008-2009.
Congressional Republicans, flexing their muscle after November’s midterm victories, say that the election results show that people are weary of big government and deficit spending, and that it’s time to draw the line against more borrowing.
Defeating a new increase in the debt limit has become a priority for the tea party movement and other small-government conservatives.
So far, the new GOP majority has proved accommodating. Republicans are moving to make good on their promise to cut $100 billion from domestic spending this year. They adopted a rules change by House Speaker John A. Boehner (Ohio) that should make it easier to block a debt-limit increase.
The national debt is the accumulation of years of deficit spending dating to the days of George Washington. The debt usually advances in times of war and retreats in times of peace.
Remarkably, about half of today’s national debt was run up in the past six years. It soared from $7.6 trillion in January 2005 as President George W. Bush began his second term to $10.6 trillion the day President Obama was inaugurated and to $14.02 trillion now. The period has seen two major wars and the deepest economic downturn since the 1930s.
With a $1.7 trillion deficit in fiscal 2010 alone, and the government on track to spend $1.3 trillion more than it takes in this year, annual budget deficits are adding about $4 billion a day to the national debt. Put another way, the government is borrowing 41 cents for every dollar it spends.
In a letter to Congress, Geithner said the statutory debt ceiling of $14.3 trillion, set last year, may be reached by the end of March – and hit no later than May 16. He warned that holding it hostage to skirmishes over spending could lead the country to default on its obligations, “an event that has no precedent in American history.” Debt-level brinkmanship doesn’t wear a party label.
Here’s what then-Sen. Obama said on the Senate floor in 2006: “The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance the government’s reckless fiscal policies.” It was a blast by the freshman lawmaker against a Bush request to raise the debt limit to $8.96 trillion.
Bush won on a party-line vote of 52 to 48. Not a single Senate Democrat voted to raise the limit, opposition that is now complicating White House efforts to rally bipartisan support for a higher ceiling.
Democrats have used doomsday rhetoric about a looming government shutdown and comparing the U.S. plight to financial crises in Greece and Portugal. It’s all a bit of a stretch.
“We can’t do as the Gingrich crowd did a few years ago, close the government,” said Senate Majority Leader Harry M. Reid (D-Nev.), referring to government shutdowns in 1995 when Newt Gingrich (R-Ga.) was House speaker.
But those shutdowns had nothing to do with the debt limit. They were caused by failure of Congress to appropriate money to keep federal agencies running.
And there are many temporary ways around the debt limit.
Hitting it does not automatically mean a default on existing debt. It only stops the government from new borrowing, forcing it to rely on other ways to finance its activities.
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