SEATTLE -- If Congress andPresident Barack Obama do not come to an agreement on the country'sdebtceiling, the consequences could be huge for every American.
But many people just plain don't understand the issue. So here are some of the basic facts.
The debt ceiling is a cap on how much the U.S. federal government can owe; think of it like a credit card limit. This includes what is owed to investors, other countries and government programs like Social Security and Medicare.
America's debt ceiling is currently at $14.294 trillion. The Treasury Department estimates the country will hit that number on August 2, which means the ceiling must be raised to a higher level by then or America will not be able to pay all of its bills.
University of Washington finance professor Lewis Mandell likens it to someone paying their bills after losing a job. They might be able to pay the mortgage and car loan, but they cannot handle their credit card bills.
When you have to spend money and you don't have enough money to spend, you have to say, where am I going to cut? Mandell said.
If the debt ceiling is not raised in time, the United States could default on some of its debt payments, which could lower the value of the U.S. dollar and cause markets to crash.
We would be plunged into another financial crisis, probably worse than the last one, Mandell said.
Or the government could choose to pay those debt obligations but cut payments to federal employees or programs like Social Security and Medicare. That could also harm the economy, Mandell said.
This is why it is so important for Congress and President Obama to reach an agreement soon, hesaid. It would ease investor fears and prevent missed payments.
Both Republicans and Democrats agree the debt ceiling needs to be raised andspending needs to be cut. But President Obama also wants new revenue from taxes, something Republicans oppose.