The U.S. is again closing in on its national debt limit, and if arecent statement by Republican Speaker of the House John Boehner isany indication, another fight with the Obama administration overthe issue of raising it might be brewing. Another debt-ceiling cage match is the last thing the Americaneconomy needs right now. Remember what happened during lastsummer's battle? It was ugly. |
But we may not be able to avoid itthis time around, so here's a preview of what we might expect. Brother, Can You Spare a Trillion? All of us have credit limits that determine how much money we cansafely borrow to pay our bills. The federal government's creditlimit -- or "debt ceiling" -- has a few more zeroes than ours. Itcurrently stands at $16.4 trillion. And unlike those of us who havelearned to live within our means, Uncle Sam spends a lot more moneythan he takes in.
To raise the debt ceiling, both houses of Congress and thepresident must agree to do it. In the past, that's never been anissue. In fact, the debt ceiling has been raised 74 times since1962 -- 10 times since 2001 alone. But last summer, something that had been little more than aformality exploded into a showdown between theRepublican-controlled House of Representatives and the Obamaadministration that brought the U.S. to within hours of defaultingon its debts.
In the end, an agreement was reached, and the country did notdefault. But as a result of the high-stakes, high-publicityshowdown, the U.S. -- for the first time in its history -- lost itsAAA credit rating, the highest rating credit agencies can bestow onsovereign or corporate debt. Our Credit Rating Conundrum Credit ratings count, because they help determine the interest rateat which the country can borrow.
Right now, 10-year Treasuries --the benchmark U.S. Treasury bond -- are yielding about 1.7%, whichis wonderful. It means we only have to pay investors a measly 1.7%or so to buy our debt -- that's cheap. Right now, Spain and Italyare paying investors about 6% for loans.
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