The Debt Ceiling: What is at Stake
4 Pages Posted: 29 May 2011
Date Written: April 28, 2011
The debt ceiling (or limit), the legal limit the federal government may borrow, is set currently at $14.294 trillion. In his latest report, Secretary of the Treasury Timothy Geithner predicts that the United States will reach the current debt ceiling around May 16, 2011, and the Congressional Research Service estimates the federal government will have to issue an additional $738 billion in debt above the current statutory limit to finance obligations for the remainder of FY2011.
Congress is currently considering whether it should raise the debt ceiling. This is not new territory. Congress has raised the debt ceiling ten times in the last ten years. However, raising the debt ceiling for the eleventh time in as many years without recognizing and correcting systemic problems would have consequences beyond merely tapping revenue and assets to meet FY2011 budget commitments. Continuing to pass debt ceiling increases without proper spending reforms would be irresponsible.
The United States should not consider defaulting on its debt, nor should it put itself in a position where it has to postpone payment to contractors or “manage” other non-debt obligations. Neither, however, should Congress be forced to raise the debt ceiling under false pretenses. By our calculations, the United States has enough expected cash flow (tax revenue) and assets on hand to avoid either of these unattractive options until at least the end of the current fiscal year in September, perhaps even longer.
Keywords: debt ceiling, debt limit, federal budget, federal spending
JEL Classification: H6
Suggested Citation: Suggested Citation