Why Is The Debt Ceiling Important?

Melissa Block talks to NPR's Scott Horlsey about the debt ceiling, federal finances and various efforts to grab hold of the big picture.

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ROBERT SIEGEL, Host:

And for more on the upcoming debt-ceiling debate, we're joined by NPR's Scott Horsley, who's at the White House. And Scott, we've heard a lot of people say that this debt-ceiling increase is must-pass legislation. Why so important?

SCOTT HORSLEY: Yeah, Robert. Politicians have been falling all over themselves to describe the dire consequences of not raising the debt ceiling. Some have called it catastrophic. White House spokesman Jay Carney today called it Armageddon-like.

SIEGEL: When you don't make a payment on your credit card bill, suddenly the interest rate goes up. If your house is foreclosed on, next time you want to get a home loan, it's a whole lot more difficult. Well, imagine if that were to happen to the whole country. And this would not be some short-term shutdown of the government that would be over in a few days. This could have a much more lasting effect.

Here is Treasury Secretary Timothy Geithner, who was talking to lawmakers about what it would mean.

SIEGEL: Every business, for a very long period of time, would raise a much higher cost of borrowing. Every family would raise a much higher cost of borrowing. Unemployment would rise dramatically. Thousands - if not hundreds of thousands - of businesses would fail. And of course, you would shake the confidence of the world in U.S. financial assets and treasuries. It would be a deeply irresponsible act - again, inconceivable.

HORSLEY: And of course, precisely because this legislation is so crucial, some lawmakers will try to use that leverage to exact something in return.

SIEGEL: Now, lawmakers go on recess at the end of this week and they don't come back to Washington until early May. How much time does that actually give them to make a deal?

HORSLEY: Well, not a lot. The Treasury Department has said we will be bumping up against the debt ceiling within a week or two of Congress coming back to Washington. There are some things the government can do to buy time, and put off that day of reckoning. It's sort of like if you have to pay the credit card bill, maybe hold off paying the light bill for a little while. But sooner or later, you run out of rope.

Geithner has said the drop-dead date would be sometime in July. This administration, though, doesn't want it to go that long because just getting close to the debt ceiling starts to make the financial markets very nervous. And you really don't want to have people start to question whether the full faith and credit of the federal government might not be all that credit-worthy.

SIEGEL: Let's put together what happened on Friday night with what looms out ahead. The White House is talking up the spending cuts in the deal that they struck with Republicans as the biggest cuts ever. Do cuts of that magnitude take any pressure off raising the debt limit?

HORSLEY: They really don't. First of all, even with $38.5 billion in cuts, this year's federal budget is a long way from being in balance. But even if we did balance the budget today, the federal government would owe its creditors for all the money it's borrowed in the past. And it would have to keep borrowing money just to pay the interest on that old debt.

SIEGEL: Raising the debt ceiling isn't just a license for new government spending. We need to raise the debt ceiling just to keep from bouncing the checks that the federal government has already, in effect, written.

You know, it took a while, Robert, to dig ourselves into this hole. It's going to take a while to dig ourselves out. But the old rule that if you stop - if you find yourself in a hole, stop digging?

(SOUNDBITE OF LAUGHTER)

HORSLEY: That doesn't really apply here. You know, if we just stand still and don't make some structural fixes to the hole, were going to find it caving in all around us.

SIEGEL: OK. Thank you, Scott.

HORSLEY: My pleasure.

SIEGEL: That's NPR's Scott Horsley, speaking to us from the White House.

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