The United States debt ceiling crisis was a financial crisis that threatened a US government default.The debate was about increasing the upper limit of the debt ceiling, whether or not it should be increased, and by what amount.The United States government expects to take in about $170 billion in revenues. Expenses will likely total more than $300 billion, however, so about $130 will have to be raised by borrowing.
That is normal. The US government is deeply in debt – more than 14 trillion dollars – and it borrows to meet its debt obligations every month. There are usually more than enough people willing to lend the US government money because it is seen as a very safe investment.
What is not normal is that for the first time a substantial number of Republican lawmakers are not willing to allow the additional borrowing unless huge spending cuts without tax increases are agreed on. They have the power to force spending cuts because of what is called the "debt ceiling".
Periodically, the Congress authorises the US Treasury Department to borrow money up to a certain limit. That is the debt ceiling. In the past, whenever the debt ceiling was reached, Congress simply voted to increase it. That has happened dozens of times in the past without problems, but not this time.
The last election brought a large group of new Republican lawmakers into the US House of Representatives who were committed to forcing the government into balancing its budget. They are refusing to support raising the debt ceiling unless their demands are met. Since the Republicans control the House of Representatives, this threat has been taken very seriously.
This is a dangerous game, because if the debt ceiling is not raised very quickly, the US Treasury Department will run out of money and it will not be able to pay its bills. This could result in financial panic throughout the world, because so many people around the world either receive payments from the US government or have lent it money.
It now looks likely that some sort of a compromise will be reached at the last minute and a default on US government debts will not occur. Watch to see what kind of a deal is reached – if it is reached.
