NEWPORT BEACH – It has been raised more than 70 times in the last 50 years, mostly without commotion. It must be raised again this summer if the United States government is to continue paying its bills on time. But now America’s debt ceiling has become the subject of intense political posturing and touch-and-go negotiations behind closed doors. And, obviously, the outcome has implications that go well beyond the US.
As part of America’s system of checks and balances, Congress gets to do more than just approve the annual federal budget. It also sets a limit on how much debt the US Treasury is allowed to issue. Beyond this ceiling, the government can spend only from current revenues.
US Treasury Secretary Timothy Geithner recently informed members of Congress that the government will be in this situation on or around August 2. Having already officially hit the ceiling, the Treasury is moving money around and tapping various pots of unused funds to pay its bills. In a few weeks, this “flexibility” will be used up. With the US government now borrowing around 40% of every dollar it spends, a truly binding debt ceiling would immediately force the government to reduce spending radically and in a disorderly fashion.
Politicians across the political spectrum know that such a situation would unsettle an already fragile US economy, severely weaken the dollar, and raise serious concerns about the country's ability to meet its debt-service obligations, including to the many foreign creditors that the US will need in the future. Yet, in today’s polarized environment in Washington, Republicans and Democrats are unwilling to compromise – or at least to compromise “too early.”