The debt limit vote is set for Wednesday, which will extend borrowing for another three months, and Obama is likely to sign it. Though it seems as if Congress may finally be doing something before we hit the brink, such as happened in December, they are really just doing what they know best, kicking the can down the road.
That brings us to the debt ceiling. What actually is the debt ceiling, and what would happen if we went over?
According to the Department of the Treasury, “The debt limit is the total amount of money that the United States government is authorized to borrow to meet its existing legal obligations, including Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and other payments. The debt limit does not authorize new spending commitments. It simply allows the government to finance existing legal obligations that Congresses and presidents of both parties have made in the past.” In order for spending to continue, and the bills to be paid, we must extend our debt ceiling, which currently sits at $16.4 trillion.
Many are now looking to this debate, and seeing this as a perfect opportunity to cut spending. Well, it is, but this is not necessarily a “license to spend more” for Congress, this merely allows for the Treasury Department to pay our bills. With a budget looking to be voted on in the coming weeks in the Senate, we are at a unique time to look at spending controls.
If Congress does not pass the debt ceiling, will it shut down? In short, not a full shut down. Essential services would continue, but there would be severe cutbacks in federal programs, especially the longer the debt ceiling crisis lasted. "After two weeks you'd have absolute paralysis in the federal government," said Steve Bell, economic policy director at the Bipartisan Policy Center.
There has also been talk of the president invoking the Fourteenth Amendment, should Congress fail to raise the debt ceiling. The Fourteenth Amendment states: "The validity of the public debt of the United States, authorized by law ... shall not be questioned." In essence, the president could let Treasury just continue to keep borrowing in order to fulfill the country’s obligations. This would be a very controversial issue, however, for Obama, and could likely begin a battle disputing its constitutionality.
That $1 trillion platinum coin? Is it even legal? Can the United States print money in order to buy down our debt, thus making the debt ceiling moot? Well, officially, there is a legal loophole for minting platinum coins, even though Treasury cannot print paper money to buy down debt. This, however, would take a big hit on the Treasury’s reputation and rating, and thus, the idea has been shut down. "Neither the Treasury Department nor the Federal Reserve believes that the law can or should be used to facilitate the production of platinum coins for the purpose of avoiding an increase in the debt limit," Treasury said
So, as Congress votes on the debt limit today, hopefully we all now know a little of what is at stake. And when we come to this debate again in 3 months, we will do this all over again.