Another debt ceiling debate

Date posted: October 2, 2013

We’re apparently about a month away from the federal government hitting the debt ceiling, and it’s sparking a lot of debate. What this is about, and why it’s controversial? N.C. State University economist Mike Walden responds.

“Well, many would say. ‘Here we go again’ because we’ve been down this road before. But to put perspective, the Federal Government, except for a couple of years in the 90s, always spends more money than it takes in in taxes.

“So the Federal Government is always out there borrowing money. And the borrowing, of course, always gets added to the national debt. Now, the President and the Congress jointly always put a cap on the national debt.

“They say the national debt can’t go any higher than this. But if the borrowing continues, eventually we’re going to hit that cap or ceiling. And if we’re going to have continued borrowing, that cap had to be increased. So, we’re there now.

“Again, we’re hitting that cap. It looks like it’s going to be hit sometime within the next month. And this is always controversial — raising the debt ceiling cap — because it brings up debates about why are we borrowing. Are we spending too much? Are we taxing too little? Can we economize, etcetera? And those debates will go on.

“But one concern that many economists have, of course, is that if we don’t increase the debt ceiling and if we don’t make other accommodations, could we perhaps default, could the Federal Government default on some of its debt? And the Federal Government has never done that, ever in our over 200-year history. And if we did begin to default on some of our debt, that would have enormous consequences for the debt rating of the government, for interest rates and in fact, interest rates in the entire country. So we will have to watch how this scenario plays out.”

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