Are they bluffing? Or could Washington politicians really torpedo the economy by refusing to raise the nation’s borrowing limit?
The conventional wisdom is that the debt-ceiling drama is mostly political posturing. Once they’ve made their point, the thinking goes, Republicans and Democrats arguing over how to rein in out-of-control government spending would reach some kind of agreement, raise the federal debt ceiling, and allow the government to keep functioning normally. But businesses and investors are starting to worry. The government will max out its borrowing ability in early August, and will have to dramatically cut spending if it’s not allowed to borrow more. Taxes and other revenue only cover about 60 percent of what the government spends. It borrows—by issuing Treasury securities—to finance the other 40 percent or so. Economists are now running the numbers and trying to predict what will happen if the debt impasse continues and Washington has to stop borrowing. This is not work for the squeamish.
