What is the Dreaded Debt Ceiling and What Happens if it Caves in?

BRADENTON -- As if Americans don't have enough to worry about, now it's the threat of a "Debt Ceiling" coming down on top of them. What does it mean? Who's at fault? And what can we do about it? These are questions being asked everyday by ordinary Americans. Actually, our everyday life is comprised of examples that demonstrate what it means, how it's used and what will happen if it falls.

The "Debt Ceiling" is much like your credit card limit, or the amount of trust or confidence bestowed in any exchange that has hit its agreed boundaries. If we are obliged to get equipment to do a job and we have neither the cash nor the available credit on our card, we request a credit increase. In government, it works much the same way.

The United States public debt is a monetary measurement of the United States federal government's obligations. It's made up of two parts -- federal securities held by institutions and individuals outside the government, and "Intergovernmental Holdings" -- U.S Treasury securities held in accounts like the OASI Trust Fund (to fund Social Security). When the reserved funds fall short of what the government needs to pay its bills, the President goes to Congress and asks for an increase in its stated limit.

What's threatening us today: Congress and the President are in a stalemate over whether the President will get the votes needed to raise the limit. Will it be budget cuts or tax hikes that takes them there?

Obama is proposing a little of both, but leaning heavier on the revenue that repealing the Bush tax cuts would bring to the hungry deficit. Neither are willing to budge. The Republicans won't move from their comfort zone of corporate subsidies (oil, gas, etc.) and the Bush Tax cuts that have yielded $3 trillion over the last 10 years for wealthy Americans, at the expense of desperately needed tax revenues. Republican leaders want the President to get the needed revenue by reformulating programs like Social Security and Medicare.

There may be one trump card the President can play if forced with a shut-down of the government (which is what many feel will happen if the U.S. Govt. fails to make a debt payment on this coming August 2, deadline). It is Article 4 - Amendment 14 of the U.S. Constitution. It questions the validity of there being a provision that allows a cap to be put on the debt. Republicans question the validity of that interpretation. If the circumstances took the argument there, it would be the courts left to decide who gets the upper hand.

If no agreement is met and the deadline for payment passes, repercussions are inevitable. Some government employees won't get paid, that is, right away, until issues are resolved and then all missed payments will be met retroactively. If the President decides to withhold payments to bond holders instead, interest rates may go up, but most likely not as severe as the fear-mongers are bellowing. Imported products will cost more and we'll be seen as "troubled" like many other countries in the world -- which most economists would probably consider an accurate description, wouldn't you think?