As we know from LearnVest’s Get Out Of Debt Bootcamp, there’s no sense in dwelling on how we got into debt. Instead, it is important to shake off the paralysis and begin taking steps forward. The United States government could learn a thing or two from our bootcamp. In May, the U.S. hit its debt limit, or the total amount that Congress has authorized the Treasury Department to borrow.
Raising the debt ceiling will require serious budget cuts, and so far Democrat and Republican lawmakers’ bickering has hindered any progress from being made.
Republicans Meet to Revise Debt Plan
Today, Republicans were due to meet at 10 a.m. to decide a way forward after House of Representatives Speaker John Boehner’s deficit-cutting plan failed to overcome conservative opposition within the Republican party.
Boehner’s plan proposed to cut spending by about $900 billion and raise the debt ceiling for a few months. It was sure to be rejected by the Democrat-controlled Senate, but it still had potential to be reformulated into an eventual compromise. Since the plan has also encountered friction in the Republican-run House, however, there are doubts about whether Boehner will be able to garner enough votes to strike any sort of deal with the Senate.
Democrats Consider Other Proposal
Meanwhile, Democrats continue to lob criticism at Republicans, accusing them of sympathizing with the fiscally conservative Tea Party movement and forcing the U.S. to comply with their vision of small government.
House Democratic Leader Nancy Pelosi said in a statement, “Republicans have taken us to the brink of economic chaos. The delay must end now so we can focus on the American people's top priority: creating jobs and growing the economy.”
Top Senate Democrat Harry Reid has proposed his own deficit-cutting plan, which cuts spending by $2.2 trillion over 10 years and raises the debt ceiling enough to push the crisis beyond the November 2012 presidential election. Late last night he said that he may recommend his own bill instead of Boehner’s to use as a base for compromise.
Time Is Running Out
Heedless of party tensions, the clock is ticking. President Barack Obama says that unless the Democrats and Republicans compromise, the government will begin running out of money to pay its debts on August 2—just four days away.
The Treasury may even unveil emergency plans as early as today if Congress does not agree to raise the borrowing limit above $14.3 trillion. The options include using an obscure constitutional amendment to justify raising the debt ceiling unilaterally or beginning to prioritize payments, which would force it to choose between paying bond holders or Social Security pension recipients, for example.
Even if the government takes such measures, the United States’ debt crisis will likely impact financial markets.
To read more, see our article detailing what you need to know about growing government debt.