Nick Baumann

Nick Baumann

Senior Editor

Nick is based in our DC bureau, where he covers national politics and civil liberties issues. Nick has also written for The Economist, The Atlantic, the Washington Monthly, and Commonweal. Email tips and insights to nbaumann [at] motherjones [dot] com. You can also follow him on Facebook.

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What's Happening With the Debt Ceiling Explained

| Tue Aug. 2, 2011 7:45 PM EDT
President Barack Obama signs the Budget Control Act of 2011.

Welcome to our debt ceiling explainer. As of August 3, this explainer is no longer being updated on a daily basis. You can read on for the basics of Congress' debt ceiling fight and a blow-by-blow account of the action from late June to the day President Obama signed the Budget Control Act of 2011 into law, on August 2. In addition, you can read about the deep, painful cuts to public investment and safety exacted by the bill, Kevin Drum on why the bill sucks, David Corn on the White House's strategy and Nancy Pelosi's crucial role in sealing the deal, and why this fight was just one of many to come. Going forward, major developments will be noted on our main Political Mojo blog.


The Basics: On August 2 (or maybe a few weeks later), the US government will reach the point where it can no longer pay its bills. That's because, earlier this spring, the federal government reached the legal limit on how much money it can borrow—a.k.a., the "debt ceiling." It's currently set at $14.3 trillion. The government borrows money to pay for everything from tax refunds to wars and veterans' benefits, not to mention repaying our creditors, which include China, Japan, the United Kingdom, state and local governments, pension funds, and investors in America and around the world.

A debt ceiling has existed since 1917. Before that, Congress had to provide its stamp of approval each time the Treasury Department wanted to sell US debt to raise money. (Here's a wonky history of the debt ceiling [PDF], courtesy of the Congressional Research Service.) Putting a borrowing limit in place gave the federal government more flexibility to fill its coffers without going to Congress over and over. Lawmakers in Congress have raised the debt ceiling on many occasions, including eight times in the past decade, and Treasury Secretary Tim Geithner has said that failing to raise it and allowing the US default "would shake the basic foundation of the entire global financial system."

What Happens If Congress Doesn't Raise the Debt Limit? In a word: Catastrophe.

At least that's what Geithner told Congress in January. In an ominous letter, he wrote that a US default would wreak havoc on the domestic economy and essentially result in a hefty tax on all Americans.

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