By: David Chapman
Friday, 7 December 2012
Overlooked amongst all of the talk about the “fiscal cliff” is the looming debt ceiling. While the collision course to come to an agreement on the “fiscal cliff” would have a negative impact on the US (and world) economy, failure to come to an agreement to raise the debt ceiling could in theory push the US into bankruptcy.
The battles between the Republican led Congress and former US President Bill Clinton over the debt ceiling in the 1990’s were almost legendary. Yet for all of those battles the actual increase in the debt ceiling under Clinton was low compared to his two Republican predecessors Ronald Reagan and George Bush 1. Under George Bush II, the debt ceiling was raised 7 times from about $6 trillion to almost $12 trillion. Since then the debt ceiling has gone up another three times and now stands at $16.394 trillion.
Under George Bush II the debt ceiling rose with little fanfare but since the election of Republican congress in 2010 debt ceiling battles have been normal. Given the US adds roughly $1 trillion of new debt every year primarily because of the needs that arose out of the 2008 financial collapse the next increase could take the debt ceiling over $17 trillion. US Treasury Secretary Tim Geithner has suggested that the debt ceiling have no limit. Given the polarization between the Republican led congress and the Democrat White House the odds of that happening appear to be extremely low.