Battle Looming Over Nation's Debt Ceiling

Earlier this week, President Barack Obama stated at a press conference that raising the debt ceiling was imperative to maintaining the financial health of the nation.

"The issue here is whether or not America pays its bills," President Obama said, "We are not a deadbeat nation."

The storm clouds are approaching as a heated battle over the nation's debt ceiling looms on the horizon. President Obama has warned Republicans against using the debt ceiling to implement large spending cuts, while the Republicans are arguing that the nation needs to "get serious about spending", and that the "debt-limit debate is the perfect time for it."

In response, President Obama has said that "they will not collect a ransom in exchange for not crashing the American economy."

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The nation's debt ceiling was already reached weeks ago, and the Treasury is currently using "extraordinary measures" to allow the country to continue functioning in a normal manner. These "extraordinary measures" will only last so long - projections have the country exhausting its borrowing authority by between February 15th and March 1st. Once we reach this "X Date", the Treasury will either need to prioritize payments or make each day's payments as cash becomes available. Neither choice is a good one to make.

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The nation's debt ceiling currently sits at $16.394 trillion. According to the Bipartisan Policy Center, the debt ceiling must be raised by $1.1 trillion in order to make it through 2013.

The raising of the debt ceiling was originally supposed to be part of the "fiscal cliff" package. That didn't happen, as the issue of the debt ceiling was pushed aside for another few months, so here we are again - the nation's economy on edge as the two sides attempt to hammer out a deal.

Ratings agencies are watching this situation closely - S&P downgraded the credit rating of the United States after the 2011 debt ceiling battle, and now Fitch is warning that a delay in dealing with the issue could result in the US being downgraded.

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We are roughly a month away from the "X Date" - will the two sides come together on a deal before that date? What kind of spending cuts will the Republicans be able to get included with the deal?

Filed under: General Knowledge