Econofact: U.S. taxpayers are paying for yet another manufactured debt-ceiling crisis — and not for the last time

by | May 16, 2023 | Stock Market

“ Politicians are playing with fire when they refuse to raise the debt ceiling.”

In what has become a predictable cycle, policymakers meet under pressure to raise the “debt ceiling,” the legal limit on the amount of debt the federal government can accumulate. In spite of the frequency with which this situation occurs, discussion around the debt ceiling is often shrouded in confusion. Why does the United States have a debt ceiling, and what does it mean to raise it? How have debt-limit negotiations changed over time? What would happen if the debt limit is breached?

Raising the debt limit is a matter of paying bills that we’ve already incurred. Here are the facts: The U.S. government is in constant need of borrowing resulting from the contemporary trend of running federal deficits. When the government spends more than it collects in revenues (and thus runs a federal budget deficit), it needs to borrow to make up the difference. The government borrows by selling bonds to investors around the world. While the deficit measures the amount of borrowing the government does over a set period, typically a year, the debt is the sum of all accumulated borrowing, less repayment, that the government has done up to a given point in …

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