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| The fiscal cliff meets the debt ceiling: what's the latest? | The fiscal cliff meets the debt ceiling: what's the latest? |
| (4 months later) | |
| This coming week promises to be a decisive one for the US economy – and by "decisive" we mean "nothing will get done even though we are facing some desperate deadlines", but you knew that, because that's what's been happening in Washington since last August. The US Treasury has already given up any expectation that Congress will do anything to battle the twin demons of the fiscal cliff and the debt ceiling before the Tuesday deadline. | This coming week promises to be a decisive one for the US economy – and by "decisive" we mean "nothing will get done even though we are facing some desperate deadlines", but you knew that, because that's what's been happening in Washington since last August. The US Treasury has already given up any expectation that Congress will do anything to battle the twin demons of the fiscal cliff and the debt ceiling before the Tuesday deadline. |
| Still, anyone who has read a single business article (and granted, there aren't many out there during the holidays) knows that many terrible deadlines are set to descend, all at once, like a horrible variation on a Sartre play where hell is legislative people. But what are those deadlines? And what's the difference between the debt and the deficit? And is the fiscal cliff related to the debt ceiling? Read on to get the full picture. | Still, anyone who has read a single business article (and granted, there aren't many out there during the holidays) knows that many terrible deadlines are set to descend, all at once, like a horrible variation on a Sartre play where hell is legislative people. But what are those deadlines? And what's the difference between the debt and the deficit? And is the fiscal cliff related to the debt ceiling? Read on to get the full picture. |
| What's the latest? | What's the latest? |
| First, if you haven't caught up on what the fiscal cliff is, read our handy explainer. | First, if you haven't caught up on what the fiscal cliff is, read our handy explainer. |
| Now, for the next week: on Sunday, the House is convening at 6.30pm to discuss the fiscal cliff. It's not clear whether this will lead to any kind of agreement; most experts think it won't. Prepare yourself for a week of nonstop manufactured political drama that's only slightly distinguishable from the past 17 months of nonstop manufactured political drama. | Now, for the next week: on Sunday, the House is convening at 6.30pm to discuss the fiscal cliff. It's not clear whether this will lead to any kind of agreement; most experts think it won't. Prepare yourself for a week of nonstop manufactured political drama that's only slightly distinguishable from the past 17 months of nonstop manufactured political drama. |
| But I keep hearing about the debt ceiling too. What is that? | But I keep hearing about the debt ceiling too. What is that? |
| The debt ceiling is the borrowing limit for the US government. Currently, it's set at $16.39tn a year. The government can't borrow any more than that. The debt ceiling deadline is 31 December, just one day before the fiscal cliff deadline. That means that by 31 December, the federal government will be unable to spend or borrow any more money. | The debt ceiling is the borrowing limit for the US government. Currently, it's set at $16.39tn a year. The government can't borrow any more than that. The debt ceiling deadline is 31 December, just one day before the fiscal cliff deadline. That means that by 31 December, the federal government will be unable to spend or borrow any more money. |
| What is the debt ceiling, exactly? | What is the debt ceiling, exactly? |
| The debt ceiling should be like a credit limit – but it's more like a receipt. The government always spends as much as it's allowed to spend, so by the end of the year, it has already spent all the money under the debt limit. It just needs permission to actually hand over that money. Treasury has already charged all this money, promised it here and there, is already committed to it – and can't hand it over until Congress raises the debt ceiling. | The debt ceiling should be like a credit limit – but it's more like a receipt. The government always spends as much as it's allowed to spend, so by the end of the year, it has already spent all the money under the debt limit. It just needs permission to actually hand over that money. Treasury has already charged all this money, promised it here and there, is already committed to it – and can't hand it over until Congress raises the debt ceiling. |
| What does the debt ceiling have to do with the fiscal cliff and the budget and the deficit? | What does the debt ceiling have to do with the fiscal cliff and the budget and the deficit? |
| The debt ceiling has no effect on the budget, the deficit, or the fiscal cliff. The debt ceiling is completely separate. Raising the debt ceiling will not stop the fiscal cliff, or affect it in any way. | The debt ceiling has no effect on the budget, the deficit, or the fiscal cliff. The debt ceiling is completely separate. Raising the debt ceiling will not stop the fiscal cliff, or affect it in any way. |
| Instead, the vote to raise the debt ceiling is just a political bargaining chip. Because the debt ceiling is important, Republicans want to use it to win some points. | Instead, the vote to raise the debt ceiling is just a political bargaining chip. Because the debt ceiling is important, Republicans want to use it to win some points. |
| Usually, in normal years, the debt ceiling would have nothing to do with deficit discussions. Congress raises the debt ceiling, every year, with no complaints or tussles. | Usually, in normal years, the debt ceiling would have nothing to do with deficit discussions. Congress raises the debt ceiling, every year, with no complaints or tussles. |
| But in 2011, a new precedent was set: Republicans wanted to force Democrats to vote on a new budget. They needed negotiating leverage. So the Republicans said they would not vote to raise the debt ceiling until the President gave them what they wanted in the budget. The US actually came within hours of defaulting on all its bills. | But in 2011, a new precedent was set: Republicans wanted to force Democrats to vote on a new budget. They needed negotiating leverage. So the Republicans said they would not vote to raise the debt ceiling until the President gave them what they wanted in the budget. The US actually came within hours of defaulting on all its bills. |
| That fight ended in a deadlock: the president and Democrats agreed to delay the problem for another 17 months. | That fight ended in a deadlock: the president and Democrats agreed to delay the problem for another 17 months. |
| Now we're in replay: the debt ceiling is up for another vote, and we have a budget battle again. So the debt ceiling is likely to be an important bargaining chip in the negotiations around the fiscal cliff. | Now we're in replay: the debt ceiling is up for another vote, and we have a budget battle again. So the debt ceiling is likely to be an important bargaining chip in the negotiations around the fiscal cliff. |
| What if we hit the debt ceiling? | What if we hit the debt ceiling? |
| This week the treasury said it is taking a few measures to stop paying some bills for the next few months, such as not investing money in some government pension funds. The Treasury thinks it can save about $200bn, temporarily, by not paying those bills right now. The government spends about $100bn a month. That gives the Treasury about two months of breathing room before it either defaults or has to cut other payments. When the debt ceiling is raised, the Treasury will pay the $200bn it owes to pensioners and state governments. | This week the treasury said it is taking a few measures to stop paying some bills for the next few months, such as not investing money in some government pension funds. The Treasury thinks it can save about $200bn, temporarily, by not paying those bills right now. The government spends about $100bn a month. That gives the Treasury about two months of breathing room before it either defaults or has to cut other payments. When the debt ceiling is raised, the Treasury will pay the $200bn it owes to pensioners and state governments. |
| What are the current conspiracy theories about when this will all get resolved? | What are the current conspiracy theories about when this will all get resolved? |
| We hate to pick favorites, but the best one is the theory that somehow the whole thing with the fiscal cliff gets solved on 3 January, after the deadline. | We hate to pick favorites, but the best one is the theory that somehow the whole thing with the fiscal cliff gets solved on 3 January, after the deadline. |
| Missing a deadline rarely makes people into heroes. | Missing a deadline rarely makes people into heroes. |
| Unless they're in Congress! Right now, Republicans don't want to look like they're raising taxes. A tax-raising Republican has no home and no friends. So, the theory goes, if Republicans wait until 3 January, after the automatic tax hikes, then they're not voting to raise taxes – they're voting to CUT them. Brilliant, right? | Unless they're in Congress! Right now, Republicans don't want to look like they're raising taxes. A tax-raising Republican has no home and no friends. So, the theory goes, if Republicans wait until 3 January, after the automatic tax hikes, then they're not voting to raise taxes – they're voting to CUT them. Brilliant, right? |
| Well, we'll see. This is just one theory among many. The chief problem is that a lot of lawmakers were just elected, and right now we're in a "lame-duck" Congress. So some new lawmakers may resent it if they don't get to vote on the major issue of the next 10 years. | Well, we'll see. This is just one theory among many. The chief problem is that a lot of lawmakers were just elected, and right now we're in a "lame-duck" Congress. So some new lawmakers may resent it if they don't get to vote on the major issue of the next 10 years. |
| One last thing. What's the difference between the debt and the deficit? | One last thing. What's the difference between the debt and the deficit? |
| The deficit is what the US owes in a year, to pay its bills; the debt is what the US owes long-term. | The deficit is what the US owes in a year, to pay its bills; the debt is what the US owes long-term. |
| Think about it this way: every month, you balance your budget by making sure that your debts don't exceed your income. For instance, if you're making $3,000 a month, you don't want to spend $3,100 every month; you'll end up in debt. | Think about it this way: every month, you balance your budget by making sure that your debts don't exceed your income. For instance, if you're making $3,000 a month, you don't want to spend $3,100 every month; you'll end up in debt. |
| Your long-term debt – for instance, your mortgage, or your car loans, or old credit cards – is what you're still paying off. | Your long-term debt – for instance, your mortgage, or your car loans, or old credit cards – is what you're still paying off. |
| If you are financially healthy, you will not only balance your budget every month to reduce your "deficit", but you will also make sure that your long-term debt is manageable, and that you're paying it down. | If you are financially healthy, you will not only balance your budget every month to reduce your "deficit", but you will also make sure that your long-term debt is manageable, and that you're paying it down. |
| Right now, the US deficit is roughly $1.3tn. | Right now, the US deficit is roughly $1.3tn. |
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