What you need to know about the U.S. debt ceiling

Unless a congressional deal is struck in the next few days, the United States faces default on its debt obligations early next week. The implications could be dire, so it’s likely the brinkmanship will end with an agreement before then.

Here’s what you need to know to get up to speed on the matter – just seven pieces (one if you’re rushed).

If you read just one source on the debt ceiling, make it Ezra Klein and Dylan Matthews’ primer in the WashPost.

Got that down? So head over to FT Alphaville for a timely comparison to the NFL and NBA deadlocks, and how the debt ceiling one in Washington differs: “Three big negotiations at three different stages. One deal.”

Then be sure to read James Surowiecki’s cogent piece in The New Yorker. Surowiecki thinks the ceiling should simply be removed:

The truth is that the United States doesn’t need, and shouldn’t have, a debt ceiling. Every other democratic country, with the exception of Denmark, does fine without one. There’s no debt limit in the Constitution. And, if Congress really wants to hold down government debt, it already has a way to do so that doesn’t risk economic chaos—namely, the annual budgeting process. The only reason we need to lift the debt ceiling, after all, is to pay for spending that Congress has already authorized. If the debt ceiling isn’t raised, we’ll face an absurd scenario in which Congress will have ordered the President to execute two laws that are flatly at odds with each other. If he obeys the debt ceiling, he cannot spend the money that Congress has told him to spend, which is why most government functions will be shut down. Yet if he spends the money as Congress has authorized him to he’ll end up violating the debt ceiling.

With that as background, here’s where the two sides are holding. Watch President Obama’s prime time speech from last night (or just read the highlights from The Atlantic Wire):

And the response from Republican Speaker of the House John Boehner – view video.

To understand the damage already done by this debate, catch Reuters’ Felix Salmon:

the US Congress has demonstrated clearly that it can’t be trusted to govern the country in a responsible manner. And the tail-risk implications for markets are huge. Think of the speed with which the Egyptian government collapsed earlier this year, or the incredible downward velocity of News Corporation right now. When you build up large stocks of mistrust and ill will, nothing can happen for a very long time. But when something does happen, it’s much quicker and much worse than anybody could have anticipated.

Economist Tyler Cowen shares a few smart thoughts on his blog Marginal Revolution:

1. There is plenty in the federal budget which can be cut and should be cut, starting with farm subsidies but extending considerably further.

2. In blackmailing President Obama (and arguably the Senate too), the House Republicans are cowards. They want him to take the heat for the spending cuts.

If you want more, ongoing, the WSJ has a live blog going with constant updates.

And for the much-needed humorous take, the best cartoon we’ve seen comes from the pen of Steve Breen. In this game of chicken, it looks like the car is likely to swerve right at the end, with all the drama and sweat that entails.


“Everything you need to know about the debt ceiling in one post” Ezra Klein and Dylan Matthews, The Washington Post, 7/22/11 http://www.washingtonpost.com/blogs/ezra-klein/post/everything-you-need-to-know-about-the-debt-ceiling/2011/07/11/gIQA3mPTTI_blog.html

“Smash the ceiling” James Surowiecki, The New Yorker 8/1/11 http://www.newyorker.com/talk/financial/2011/08/01/110801ta_talk_surowiecki

“President Obama’s address on raising the debt ceiling” YouTube, PoliticsNewsNews, 7/25/11 https://www.youtube.com/watch?v=RyG0kFCx-qE&feature=player_embedded

“John Boehner’s republican response on debt crisis” YouTube, CBS, 7/25/11 http://youtu.be/DHsoJQhRUYE

“The damage already done by the debt ceiling debate” Felix Salmon, Reuters.com 7/14/11 http://blogs.reuters.com/felix-salmon/2011/07/14/the-damage-already-done-by-the-debt-ceiling-debate/

“A few thoughts on the debt ceiling debate” Tyler Cowen, Marginal Revolution,