A new Congress is in session and, like déjà vu all over again, we find them arguing over the debt ceiling. As a reminder, the debt ceiling is simply the legal limit – set by none other than Congress itself – on the total debt that the federal government can carry.
Right now, that number is $31.4 trillion.
(Yes, with a “t”.)
The debt ceiling was first set back in 1917 as a way for Congress to ensure that the government is held accountable for its spending, which has completely worked!
The idea was that, if Congress is periodically forced to approve the government’s ability to borrow more money, those same lawmakers would consider the long-term consequences of their spending decisions. LOL.
I know this may shock you, but the government often spends more than it takes in each year in taxes, so they need to borrow money in order to pay for things like Social Security, Medicare, the military, pork projects, and the interest on all the money it’s borrowed in the past.
Once the government maxes out its credit card, Congress must vote to raise the debt ceiling so that the government can keep the party going and avoid defaulting on its debt.
It’s like American Express letting you raise your credit limit after you’ve already maxed it out.
But every once in a while, a Congressperson feigns concern and asks, “Hey, are there going to be consequences to all this borrowing?”
Thus ensues the political theater we find ourselves in today. Now that we have a divided Congress, we can expect both parties to draw out this fake debt ceiling fight to leverage against one other.
The Process of Raising the Debt Ceiling
The process for raising the debt ceiling typically involves a vote in both the House of Representatives and the Senate. The Treasury Department will provide Congress with an estimate of when the current debt limit will be reached and a proposal for how much the limit should be increased.
According to Janet Yellen, our current Secretary of the Treasury, the U.S. hit the debt ceiling on January 19th. They have until sometime in June to get things ironed out, thanks to “extraordinary measures” such as temporary borrowing and pausing the government’s reinvestment into federal workers’ retirement plans.
Always looking out for the little guy, right?
Right now, proposed legislation is being argued over in the House Ways and Means Committee and the Senate Finance Committee, which have jurisdiction over government spending and debt.
Proposed deals are sent to the House floor for a vote. If it passes the House, it then goes to the Senate. If it passes there, it will be sent to the President to sign.
What Happens if Congress Does Not Raise the Debt Ceiling?
If Congress fails to raise the debt ceiling, the federal government effectively shuts down. That means no money to spend on anything outside of completely necessary functions. You may remember that Federal employees can be furloughed, just like last time. And no National Park access for you!
But don’t worry – Congress is still getting paid.
And if things really went sideways, the Treasury might decide to delay (or temporarily halt) things like Social Security or Medicare payments. Of course, this would be the ultimate political third rail, so don’t expect Congress to come close to actually touching it.
An eventual default on the national debt would cause an epic financial calamity. It would be profoundly stupid for Congress to let things get to that point. I’m sure none of them want to lose the privilege of serving the people their careers over this.
That being said, Congress does seem to be careening more and more toward Idiocracy these days, so expect some brinksmanship before things are finally settled.
If for no other reason than self-interest, I believe that Congress will eventually reach a deal before the June deadline. The sound and the fury that plays out between now and then has, unfortunately, become part of our political process.
Over the coming months, expect more handwringing and stories like the trillion-dollar coin in the news. Our best course of action is to live our lives and ignore the temper tantrums of politicians and the cascade of cataclysmic news stories.
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