What’s the debt limit?

The question of raising the debt limit has occupied the nation’s attention for several weeks. N.C. State University economist Mike Walden explains what it’s about.

“Well, I think most people realize that for all except a couple of years over — the last really 30 or 40 years — the federal government does not take in enough revenue to cover its costs. Now obviously that’s a big source of debate all in itself. But it means the federal government has to borrow money to meet its legislative expenses. And Congress periodically will say to the federal government, look, we’re going to put a cap on the total amount of borrowing that is allowed. Once we reach that cap, Congress is going to have to vote to raise the cap. So we raise the debt limit.

So that’s where we are (and) have been. Right now we are up against that cap. Now some say, well, look, why don’t we just cut federal spending so we don’t have to do any new borrowing? Again, that’s a whole nother debate, but the problem, I think, in the short run would be in order to cut federal spending enough to require the cap not being raised, you’re going to have to cut federal spending a whole whopping amount. You’re going to maybe have to cut 20 percent of federal spending, which would somewhere be in the ballpark of $700. $750 billion a year. And who knows where that would come from.

“So I think what this does cry for, and many economists would argue — again, regardless of what side of the debate you’re on about the size of federal government and spending — we would like to have sort of a long-run solution such that Congress and the President don’t have to go through this debate periodically.”

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