Debt Limit? WTF is That?


The nation’s debt limit, sometimes called the debt ceiling is very similar to the limit on your credit card.  Only about $16 trillion more then yours.  It’s the max amount that the US can borrow on its card, the United States of American Express.  Unlike you however, when America maxes out its card it just calls up congress and asks for an increase in the limit.

For a brief bit of history on the debt limit we have to go back to last summer when our so called elected “leaders” brought us within a day of defaulting on our obligations.  Had they defaulted, it would have been the first time in our nation’s history and very bad for all of us.  In the end after numerous press conferences and name calling from both sides Congress voted to raise the debt ceiling in the Budget Control Act of 2011.  This time it was between $2.1 and $2.4 trillion bringing the total limit to between $16.4 and $16.7 trillion.

The silver lining in this deal was that it included $1.5 trillion in deficit reduction.  It also established what was dubbed the “Supercommittee,” which was supposed to find where to make the cuts and many hoped they would find even more.  All said and done the Supercommittee failed to agree on any cuts and automatic cuts will start to kick in beginning in 2013.  That is unless Congress makes another law that bypassed this one.  Something they have done when faced with cuts in the past.  Prior to last summer Congress voted to raise the debt ceiling by $2 trillion in January of 2010.  That’s right they blew through $2 trillion that fast!

By now you might be saying to yourself “Why raise the debt ceiling at all? Can’t we just live on tax revenue?  If the government doesn’t raise the debt ceiling then that will stop us from going further into debt?”  That might work down the road but not for the immediate future. Something to note about the debt limit is that it’s for commitments we have already made.  It is like you using your credit card to pay for something you have already committed to.  Say the rent you pay for the year long lease you have signed or your 20 year home loan.



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