The debt limit is kind of a financial weapon
of mass destruction chained to the United
States government by the United States government.
Confused? Then it's time for The United States
debt limit Explained.
To understand the debt limit you need to know
the US splits financial responsibility between
the president and congress.
The president has two jobs when it comes to
1. Collect taxes and...
2. Spend those taxes to run the government.
This might give you the impression that the
president, with regards to money, is all-powerful.
Especially when you hear news reports on 'the
president's new budget' or his plan to 'raise
taxes on haberdashers' or 'lower taxes on
But reality is just the opposite and the president
is the one who takes orders.
Congress has the jobs of setting the tax level
and determining how much the government will
spend by writing a budget.
So while the president does get to submit
budgets to congress, and asks for changes
in the tax level, these are just requests
that congress doesn't have to pay attention
Congress can add or subtract anything they
want from the president's budget or throw
it out entirely and write a new one. The same
goes for the level of taxes.
So congress decides what it wants: bridges,
tanks, buildings, courts, robots on Mars,
robots on Earth, National Parks, whatever
and approves a budget with that stuff in it.
Once approved the president's is required
by law to spend the money Congress listed
in the budget and pay for it using the taxes
that congress set.
As long as more taxes come in than spending
goes out everything is fine.
But, almost always, Congress puts more stuff
in the budget than they cover with taxes which
means the president must borrow money to cover
In most countries the story ends here because
if their legislatures approved more spending
than they have income, they've also implicitly
approved the necessary borrowing -- but not
in America. Here Congress *also* limits the
total amount of debt the United States can
A debt limit sounds like a good idea until
you see the real-world consequences of these
two branches of government interacting.
As the total amount borrowed gets closer to
the limit, Congress usually points to the
president and acts shocked, *shocked* that
his reckless spending has brought us so close
to the debt limit that they, reasonable, prudent
Congress have set.
And while it's technically correct that the
president has borrowed this money, congress
has forced him to do it, by approving a budget
that the president is legally obligated to
spend without also approving the necessary
taxes to cover that spending.
So the debt limit fight is essentially the
government version of the playground favorite:
'stop hitting yourself' except with added
terror for everyone watching.
For, it's important to note, the debt limit
is not about future spending -- it's not a
credit card on which the limit will be raised
so a crazy government party can be thrown
-- the debt limit is about paying bills already
For example, the government hires a company
to repave a federal highway. But if the US
is at the debt limit, when the company asks
to be paid after the work has been done, the
government can't. This shakes trust in the
US and since large parts of the global economy
depend on the dollar being trust worthy, messing
with that trust is a big deal.
But there is a way out: Congress can raise
the debt limit and, because of the aforementioned
terror, they always have.
So… if not raising the debt ceiling is potentially
disastrous and the solution is simple and
always taken in the end: *why does this debate
The debt limit isn't in the constitution,
congress created it themselves and from their
point of view, the debt limit is awesome because:
1. It creates a problem that
2. Congress can (technically) blame on the
3. Needs the solution that only they can provide
Congress gets to use the threat of mutual
financial self destruction as leverage in
negations that they benefit from extending
until the last… possible… second.