As the debate over raising the debt ceiling continues to rage, it is clear that the U.S. Government is now facing a stand off of sorts. Pushing up the debt ceiling would, no doubt, make a good ‘placebo’ for the immediate problem of unmanageable borrowings.
But, many critics fear that it will also serve to eliminate the sense of urgency that should hopefully push Obama’s boys into undertaking some effective spending cuts. Given these fears, there is no doubt that any move by the government to increase the debt ceiling will spark off heated discussions at every level within the country.
The debt ceiling represents the limit up to which the U.S. Treasury can borrow funds. If the borrowings grow beyond manageable levels, then Government may be forced to default on its repayments. If this does happen, the world financial markets will lose faith in the creditworthiness of the U.S. and this will have some far reaching consequences for the nation’s economy, none of them positive.
The U.S. government has carefully preserved its position as the ‘world’s safest borrower’ for over two centuries with timely repayments on all its debts. The current debt ceiling stands at $14.3 trillion, a massive figure indeed.
But what is throwing the law makers in a tizzy is that the current national debt comes far too close at $14 trillion. Before the debt can cross the debt ceiling, the government needs to take some action to ensure that either the debt is under control or the debt ceiling is revised upwards.
Conservative lawmakers have made it clear that they will not support stop gap measures like a debt ceiling revision unless the government also undertakes some effective measures to curb its ever growing debt burden. These measures could be quite drastic, for example, elimination of all discretionary spending, even defense, or chopping off a major portion of the outlay for Social Security or Medicare.
There is yet another means by which deficit can be cut to size- tax hikes. Clearly, none of these measures will make the current government too popular with the people. However, the fact that the legal debt limit of $14.294 could be breached as early as May this year leaves no room for argument.
Whatever the government, the Treasury and the opposition leaders decide on, no one disputes that it is time for Obama administration to take responsibility to sort out the fiscal mess that America finds itself in. Whether it does this by cutting spending or increasing tax or simply resorts to moving up the debt ceiling remains to be seen.