Home > Economic Update > United States = Bankrupt

United States = Bankrupt

Monday, May 16 was
D-Day for The United States — the day we hit the debt ceiling.

What does this really mean anyway?

Well,first…let’s define debt ceiling: “It is the level of government borrowing
allowed by Congress.” Think of the debt ceiling like the government’s
credit card limit… and it’s maxed out.

The current debt ceiling sits at $14.294 Trillion. This is the amount of money the government is legally allowed to borrow to fund all its functions – from defense to education to entitlement programs. But don’t worry just yet. Treasury Secretary Timothy Geithner says the government can continue to pay its debts until August 2nd thanks to higher-than-expected tax revenue and “extraordinary measures” such as stopping the issuance of State and Local Government Series bonds, which fund infrastructure and other projects.

In addition, Geithner says he is going to stop making contributions to the pension
plans of certain federal employees.

To put the debt ceiling in historical perspective: Congress has voted 10 times in
past decade to raise the debt ceiling, typically without much fuss. But this
year is different. Many House Republicans say they won’t vote to raise the debt
ceiling unless the Obama administration agrees to big spending cuts, or at
least tough restrictions on future spending. The White House says the debt
ceiling vote should be separate from the budget debate, so an All-American
standoff is occurring.

Failure to raise the debt ceiling could cause the government to default on its debt
payments, something unprecedented in U.S. history. In a statement
released Monday, Treasury Secretary Tim Geithner warned such an outcome will
result in “catastrophic economic consequences for citizens.” Government
officials Ben Bernanke, Austan Goolsbee and Defense Secretary Bill Gates agree,
as do Wall Street heavyweights like Bill Gross, Warren Buffett and Jamie Dimon.

But many in the GOP say that’s a bluff and the government can continue to make its
debt payments by selling assets such as its gold holdings or real estate, or by
cutting spending on other things, like Social Security and Medicare.

Hopefully we won’t find out who’s bluffing and who’s right.

Until next time, hang in there.

James B. Driscoll


Categories: Economic Update
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