Secretary of the Treasury Geithner just sent Senate Majority Leader Harry Reid a letter.
Noting that in 5 days the US will again have hit the debt ceiling, Secretary Geithner explains that actually, we might have an extra 2 months. In an appendix to his letter, he outlines 4 types of “extraordinary measures” that will let us avoid a debt default for awhile. He adds though, that he is not sure how long he can stretch it because of the uncertainty created by the current negotiations over tax increases and spending cuts. (Ironically, no Congressional tax and spending deal means more time to get a new ceiling.)
Where is the debt ceiling? $16.394 trillion.
Where were we on December 26th? $16.027 trillion.
In 1917, Congress decided it could not keep track of every U.S. loan. So, to maintain some control over national finance, they said, “We will decide the maximum amount the U.S. can borrow.” And, from that day onward, whenever necessary, they voted to increase how much the U.S. could borrow. Since 1962, the U.S. Congress has raised its debt ceiling 76 times.
Sources and Resources: Here is Secretary Geithner’s letter and the Treasury Department daily update of US debt totals. For some debt history, John Steele Gordon’s Hamilton’s Blessing The Extraordinary Life and Times of the National Debt is wonderful. Also, this CNN article and these these econlife posts, Debt Ceiling 101 and Looking at the Debt Ceiling, provide some background and some of the above history.
Posted by: adminEcon
Tags: Alexander Hamilton, debt ceiling, deficit, federal budget, federal debt, fiscal cliff, Harry Reid, John Boehner, Nancy Pelosi, recession, Second Liberty Bond Act, Timothy Geithner, treasury
Today, at this moment, we might be hitting the debt ceiling.
During the past 11 years, Congress has voted to raise the debt ceiling 10 times. In 2000, the ceiling was approximately $6 trillion; in 2011, it was just above $14 trillion. The whole story is here, in a congressional research report.
Now, Congress has to vote again. But first, they have to decide if and how spending cuts will relate to a debt ceiling agreement. House Speaker John Boehner has proposed at least $2 trillion in cuts that would be “achieved on a time frame no longer than the life of the debt-limit increase.”
What is $2 trillion? Divided equally among everyone in the U.S., it is approximately $6,666.66. (Where Does the Money Go? Your Guided Tour to the Federal Budget Crisis, p. 46).
The Economic Lesson
In terms of the federal budget, this excellent Washington Post federal budget interactive chart gives us some idea of what $2 trillion means. Total annual spending is $3.7 trillion. $2 trillion would be close to 2 1/2 times what we spend annually on Social Security ($770 billion a year) or 25 times the international affairs budget ($75 billion a year). For other spending categories, you can look here.
An Economic Question: Citing revenue and spending, explain why the debt ceiling had to be increased 3 times between 2008 and 2009. (Hint: the recession).