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The Debt Ceiling. Mr. Giesler Economics. High–Stakes Tug of War. What is the Debt Ceiling? Federal law requires Congress to authorize the government to borrow any money that is needed to pay for the programs that Congress has passed.
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The Debt Ceiling Mr. Giesler Economics
High–Stakes Tug of War • What is the Debt Ceiling? • Federal law requires Congress to authorize the government to borrow any money that is needed to pay for the programs that Congress has passed. • As the national debt has grown, the Treasury has periodically bumped against this debt limit or debt ceiling. • Votes to raise it are among the least popular things Congress does, but the limit has been raised dozens of time, generally with little fanfare. • In 2011, the debt ceiling became the central battleground for conflict between the Republicans who took control of the House in the 2010 elections, and President Obama and the Democrats who still control the Senate.
High–Stakes Tug of War • What is the Debt Ceiling? • In May 2011, the Treasury Department said that the debt limit of $14.29 trillion had been reached, but said it could keep the government functioning normally by “extraordinary measures’' that would run their course by Aug. 2 • The Fight Over the Debt Ceiling • Round 1 • Late May, bipartisan meetings to raise the ceiling and explore possible savings • By June, talks collapse…..Why?
The Fight Over the Debt Ceiling • Republicans rebuff Democratic insistence that a deal include revenue increases as well as spending cuts. • July, Obama promotes a $4 trillion deficit-reduction deal “Grand Bargain "that would include reductions in Social Security, Medicare and Medicaid as well as changes to plug tax loopholes. • House Leader John Boehner backs-off because of tax increases • The Federal Gov’t Default looms • July 31, agreement reached that would raise the debt ceiling by up to $2.4 trillion in two stages, enough to keep borrowing into 2013. The pact called for at least $2.4 trillion in spending cuts over 10 years, with $900 billion in across-the-board cuts to be enacted immediately.
The Fight Over the Debt Ceiling • TTYN: Who won round one? Who lost? Why? • Round Two • The agreement called for a bipartisan Congressional commission, or “super committee,” which was given the task of coming up with the second round of deficit reductions by November 2011 • To put pressure on, a “trigger’' was adopted that meant a failure by Congress to enact those cuts would lead to across-the-board cuts in military spending, education, transportation and Medicare payments to health care providers
Super Committee • Round Three • Black Friday Comes Early: Super Committee fails to reach an agreement • TTYN –Why did the bipartisan committee fail, knowing that the economic fate of the United States was in the balance? • Democrats opposed it because it cuts spending deeply without raising revenues • The Tea Party wing of the House Republican caucus were against any increase in the debt limit. • Residual Effect: Many economists suggest that cutting spending in a time of economic weakness would slow down any recovery.
Super Committee • Round Four • Automatic cuts kick in 2013 • The cuts include: $1.2 trillion in defense and nondefense spending. Exempt from the cuts: Social Security and programs for low-income people, such as Medicaid. Medicare cuts, meanwhile, would be limited • Stay tuned • Homework • Prediction: What is going to happen next? • One-page précis • Using your understanding of the contrast between the two parties, summarize what you believe will happen thirteen months from now when the cuts are set to kick in.
