CHART OF THE WEEK
US Debt Ceiling
Summary: The US “fiscal cliff” might have been pushed back for the time being, but the debt ceiling remains an issue that must be dealt with by the government sooner rather than later.
What does the chart show? The red line shows the daily total US public debt (government debt held by the public and intragovernmental holdings) in trillions of dollars since January 2006. The black line shows the debt ceiling (the self-imposed limit on how much the government is allowed to borrow), also in trillions of dollars.
Why is the chart interesting? A limited agreement on the US fiscal cliff was reached over the New Year period (although the difficult decisions on spending cuts were deferred until a later date). However, on the 31st December, the Treasury Secretary Timothy Geithner sent a letter to Congress announcing that the debt ceiling had been reached and that emergency measures were being undertaken. They now have roughly two months to agree to raise the debt ceiling, or the US government will have to default on at least some of their debts (an unlikely but disastrous scenario).
As you can see, over the past seven years there have been periodic increases to the limit, and there is little doubt that they will once again come to an agreement. However, it is probably too optimistic to expect a decision to be reached easily in the current political climate. Don’t be surprised if an extension is only agreed upon at the very last minute, possibly accompanied by another official downgrade by the ratings agencies.
The ERC Chart of the Week is updated every Wednesday.