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Now that we've gotten past the debate over raising the debt ceiling, so the world economy isn't going to hell next week, could someone explain it clearly?

Most news sites describe it by analogy with a credit card limit. But that's not very satisfying to me. When you hit your card limit, the bank won't let you incur any more debt on that card. If you want to buy something on credit, you simply can't. But you haven't defaulted on your previous debts, as long as you keep paying them back on schedule.

But if the US had hit the debt ceiling, we would have started defaulting on payments. The only way I can rationalize that with the above analogy is if we're taking out new loans in order to pay back previous loans. If we run into the limit, we won't be able to take out these new loans, and as a result we won't be able to pay back the old ones.

They also say that we're just paying for things that Congress has already authorized. Does that mean that they're not taking the debt ceiling into account when they budget for the year? I know the Federal government isn't required to have a balanced budget, but I think that just reflects that payments can exceed income (mainly taxes, fees, and tariffs); the natural assumption is that the difference will be made up through loans (government bonds), and they know what the ceiling on that is when making the budget.

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  • It's more like taking out a second credit card to cover your bills, while continuing to make payments on the first one. It works... for a time, but it means more and more of your money is going to interest payments. Eventually all of the family's money will be going to interest payments right before they go bankrupt. The right side of the family doesn't think we should keep taking out credit cards and instead spend less. Other family members are then calling them 'irresponsible' for refusing to take out more credit credit cards. 😕
    – SurpriseDog
    Commented Jun 5, 2023 at 14:56
  • Currently the family has more in credit card debt than they make in a year. cbo.gov/sites/default/files/images/full-reports/2023/… - Eventually, this debt must be dealt with instead of just accumulating more, year after year. Quite possibly by Severe Austerity measures, bankruptcy (default) or wild inflation.
    – SurpriseDog
    Commented Jun 5, 2023 at 15:02

1 Answer 1

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It is just the maximum amount that the US can borrow by issuing bonds and has no impact on what the US can spend.

U.S. Debt Ceiling: Definition, History, Pros, Cons, Clashes

The debt ceiling is the maximum amount of money that the United States can borrow cumulatively by issuing bonds. The debt ceiling was created under the Second Liberty Bond Act of 1917 and is also known as the debt limit or statutory debt limit.

The debt ceiling is the maximum amount that the U.S. government can borrow by issuing bonds.

The Treasury Department must find other ways to pay expenses when the debt ceiling is reached; otherwise, there is a risk that the U.S. will default on its debt.

A simple way to think about it is congress is allowed to spend as much as they want but when it comes time to pay for what they spent the country is only allowed to pay up to a certain amount.

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  • I think what's confusing is that the word "debt" is being used in two ways. It's their "accounts payable" -- the payments they have to make for things they've already bought. And it's also the loans taken out to pay for this since the budget isn't balanced.
    – Barmar
    Commented Jun 2, 2023 at 21:49
  • Defaults would arise because the U.S. has mandatory payments like debt service for Treasury bonds, entitlement program payments, government contract payments for contracts that are currently binding and in force, payroll obligations, rent, and utility bills that exceed its revenues on a daily basis. These need to be financed with newly issued debt in addition to the refinancing of existing debt. Without borrowing in excess of the authorized amount in the debt ceiling, the federal government can't pay its mandatory obligations as they come due. So, it would default on its legal obligations.
    – ohwilleke ♦
    Commented Jun 2, 2023 at 23:13
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    On January 19, 2023, the United States again reached the debt ceiling. Since January, the Treasury has been taking money from other Federal departments ("extraordinary efforts") to avoid issuing new bonds/notes/bills that would exceed the debt limit. Yellin (what the Treasury call "extraordinary efforts"). Yellin's X-date of June 5 was when she expected that all available resources would have been exhausted, in other words, there is no money in the "checkbooks" to pay the outstanding obligations.
    – BobE
    Commented Jun 4, 2023 at 3:36

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