U.S. President Barack Obama is seeking new authority to set the country's borrowing limit, adding a contentious new element to the end-of-the-year debate over the government's spending and tax policies.
The U.S. is again nearing its legal borrowing limit, now set at nearly $16.4 trillion. It is likely to reach that limit in early 2013, and without further congressional authorization, the U.S. would not be able to sell more government bonds to finance its operations. As the country's debt mounts, increasing the ceiling on its borrowing limit is now controversial in the U.S., even though it has been done more than a hundred times in the last century, often with almost no debate...
As it stands now, several foreign governments, topped by China and Japan, are the biggest investors in U.S. securities, each holding more than $1 trillion in American bonds. Economic analyst Steve Bell of the Bipartisan Policy Center in Washington said there would be widespread uncertainty throughout the world about the safety and reliability of U.S. financial obligations if the debt ceiling is not increased again.
"If that were to happen, which would be unprecedented in American history, that means that the Treasury would essentially have to pay the bills as they came due, and I mean that literally," Bell noted. "It's 9 o'clock in the morning, and a bill came due, and enough money had happened to come into the Treasury that day to meet that bill, they'd pay that bill. But the next bill would come in, and there wouldn't have been enough money, that bill would not be paid. The question is for everybody in the world who depends upon the safety of American debt, would this mean the debt would be paid on time? And the answer is, nobody knows."