The Debt Ceiling Crisis: Your Cheat Sheet to What It Means

Laura Shin
Posted

government debtThe government shutdown this week has made headlines this week—and provided fodder for late-night comedy.

After all, it seems shocking and a tad absurd that the government of the world’s largest economy is closed for business.

But behind the sound and the fury, a real, serious debate is happening—and it could affect not only your wallet but wallets the world over.

Here’s your cheat sheet to what Congress is squabbling over, what a debt ceiling is anyway, and what could happen if this issue isn’t resolved.

What Is This Shutdown Really About?

On the surface, it seems that this fight is about health care—specifically, U.S. President Barack Obama’s signature legislation, the Affordable Care Act, also known as Obamacare. Extreme-right Republicans in the House of Representatives want the president to defund or delay it; insurance exchanges for people without health insurance opened on October 1.

RELATED: Obamacare Exchanges: What You Need to Know

In order to secure their demand, they took a worthy hostage: funding for the U.S. government.

Basically, they are refusing to even give Congress the authority to keep spending money unless Obamacare is put on the back burner. Since the government fiscal year began on October 1, there was no more funding available as of that date. It is illegal for the government to spend taxpayer money without permission from Congress.

The health-care exchanges created by Obamacare opened on October 1 anyway, because the funding for them was previously approved, and so now everyone is turning their attention to the next crisis: the debt ceiling.

What Is a Debt Ceiling?

The crisis over the debt ceiling differs from the shutdown in one key respect. The U.S. government’s debt ceiling is a figure, set by Congress, that limits the amount that the U.S. government can borrow. If the government debt ceiling is not raised, the government will not have the legal authority to borrow money to pay its bills.

RELATED: Growing Government Debt: What You Need to Know

The government regularly spends more money than it raises in taxes and other revenue. It’s been that way for all but four years since 1970. This probably happens because Congress approves spending at a different time than it decides upon the debt limit.

  • kgal1298

    Can we just discuss the entire issue of the US being able to borrow? For one how can you have a debt ceiling when you’re a country who mints it’s own money and hasn’t used a fiscally stable system since it went off the gold standard since we all knew gold eventually would run out. It just doesn’t make sense and so with that the debt ceiling keeps being raised with no end in site, but the most ridiculous part is that they are using government workers as hostage that’s like stealing your sisters Barbie Doll until she lets you watch TV. It’s incredibly ridiculous.

  • lskn

    I am old enough to remember the debt crisis under President Reagan. I was just in high school, but I remember the feeling of panic people had about the amount of debt the government was accruing. Fast forward 10 or so years to the middle of the Clinton administration, when the economy was doing so well and federal revenues were so high, there was a possibility of actually paying off most or all of the debt—which economists warned we shouldn’t do, because it would have a destabilizing effect on the economy. The problem isn’t debt, it’s revenue. The only ways to create new revenue is changing the tax code so some or all of us pay more taxes or an economic recovery that results in more income for the federal government. Yet House Republicans want to cut taxes and refuse to even talk about job-stimulating measures.