2:28pm

Mon April 11, 2011
Planet Money

The Debt Ceiling, Explained

Every day, the federal government spends more money than it takes in. It makes up the difference by borrowing money. So every day, the government's debt increases. Some time next month, total federal debt will rise above $14.3 trillion.

There's a law on the books — first passed in 1917, updated many times since — that caps the federal debt at $14.3 trillion. This is the debt ceiling.

Some time very soon, the government either has to raise the debt ceiling or stop spending more than it takes in (in other words, balance the budget).

Balancing the budget would mean cutting spending by about 40 percent, raising taxes by a comparable amount, or enacting some combination of massive spending cuts and huge tax increases. (Context: Every penny of discretionary spending, including defense, amounts to about 40 percent of the budget.)

Balancing the budget immediately bears no resemblance to the budget and tax policies passed by Congress in the past few months. It would be a much bigger, much faster spending cut and/or tax hike than leaders of either party are proposing.

Trying to stay below the ceiling could also ultimately force the government to default on its debt, which has never happened in U.S. history. Because U.S. Treasury bonds are held around the world, and are considered nearly as safe as cash, a U.S. default would create economic chaos.

Congress has raised the debt ceiling nine 10 times in the past decade, according to National Journal. And it seems likely that the current debate over the debt ceiling comes down to what sort of posturing, or negotiating, or whatever, will happen between now and whenever Congress votes to raise it again. Copyright 2011 National Public Radio. To see more, visit http://www.npr.org/.