What happens if we don’t raise the debt ceiling?

Worth Repeating

 

(From the Office of  U.S. Congressman Jesse Jackson, Jr.
Representing the 2nd District of Illinois)

 

July has been a busy month here on Capitol Hill, one reason being the debate over increasing the debt limit. This debate isn’t just empty, partisan rhetoric – the outcome will have a real impact on every American family. I want to explain to you what these discussions are about, and more importantly what it will mean for you and your family.

What is the debt ceiling?

The debt ceiling is the legal limit on borrowing by the federal government. Prior to World War I, Congress had to approve any borrowing to finance the federal government’s operations on an individual basis. As the nation entered the War, lawmakers agreed to give the federal government approval on most types of borrowing so long as it did not total more than the legal limit approved by Congress.

The current debt limit is $14.294 trillion.

Why does the nation have so much debt?

The nation has always held a notable amount of debt. During the last decade, the national debt soared an additional $4.36 trillion due to the debt-financed wars in Iraq and Afghanistan, increases in defense spending, the tax cuts in 2001 and 2003 and the Medicare Prescription drug plan. Decreased tax revenue as well as emergency spending such as the American Recovery and Reinvestment Act have also caused the nation’s increased debt.

Why should we raise the ceiling?

While we reached the ceiling on May 16th of this year, the U.S. Treasury has engaged in a number of methods to prevent us from failing to meet our financial commitments. On August 2, without being able to borrow more funds, our nation will essentially no longer be able to pay our bills.

The Federal government incurs debt in order to fully finance vital domestic programs, fund our troops in combat and pay interest on outstanding loans. Without an increase in the current borrowing limits, the federal government will be unable to meet these and other obligations.

What happens if we do not raise the debt ceiling?

Business leaders and economists agree that a failure to raise the debt ceiling will have a catastrophic effect on our economic recovery and the international and domestic markets. The debt ceiling has been raised by Congress nearly one hundred times since it was established during the first World War, so there is no precedent for a situation in which it has not been raised.

However, if a compromise cannot be reached and the Treasury Department is unable to pay our debt obligations or increase the nation’s legal borrowing limit, economists predict a number of events may occur:

The Federal government will be unable to pay nearly one-third of its current spending and may also be unable to pay interest on the nation’s debt. U.S. stocks and bonds will lose value. Credit rating agencies, like Standard and Poor’s and Moody’s will likely downgrade the United States’ AAA credit rating. Interest rates will rise for credit cards, mortgages and other loans, affecting the day to day life of every American. Businesses may lose faith in the government’s ability to pay its debts and will be less likely to invest in new development and job creation.

As the strongest economy in the world, if our nation falters, other nations will likely follow jeopardizing the fragile international economic recovery. We cannot afford to let this happen.

Why is this issue controversial now?

You may have heard a lot of talk in the media lately about the federal debt ceiling. Some Members of Congress are willing to play a high-stakes game of chicken with our economic recovery, threatening not to raise the ceiling unless they can tie it to damaging, politically-motivated budget cuts.

Congress has consistently raised the debt ceiling without controversy. In fact, since 1980, the debt ceiling has been raised 39 times. Congressional leaders of both parties agree that failing to raise the debt ceiling would have tremendous consequences for our economy. Yet, a deal has not been reached by Congressional leaders and the Obama Administration that both parties can support that does not threaten our economic recovery or any of the vital social safety net programs like Social Security, Medicare and Medicaid.

I hope this was helpful in explaining the debt ceiling issue. I’ll keep fighting to make sure we avoid this major hit to our economic recovery and without cuts to important federal programs that benefit individuals throughout the 2nd Congressional District. Please do not hesitate to contact my office with additional questions or if we can be of service to you in any way.