Eli5: Does America need to pay its debt before raising the available credit?


If the debt ceiling is basically available credit, does the government need to pay this before requesting more credit? Why or why not?

Please no political answers.

In: 0


The debt ceiling is a completely arbitrary limit placed by Congress. Congress can raise it at any time. It has nothing to do with the credit actually available.

People are more than willing to continue lending to the government at a rate of 4.65% at the time of writing, considerably lower than just about anyone else can get.

Oh dear god no!

The debt ceiling is largely a political football. There was a time when it was getting paid down, but since around 1970 the national debt has been rising, and rising faster.

The US is an example of “too big to fail” most other nations depend on us for their economies. For example, China and Japan hold a ton of our debt, but we import a massive amount of goods from them. The EU is somewhat dependent on the US military.

If the US defaulted in its debts it would be global economic chaos. So we just keep borrowing.

TLDR; at a certain point large amounts of debt are theoretical, they exist on paper but it’s impossible to collect.

People want to buy US debt so much that they are lending to the government at 4-5%. Since inflation is running closer to 7% in much of the world that means they will actually end up getting back less than they lent in inflation adjusted terms. So people are effectively paying the US to lend it money.

No, and basically any comparison between personal credit debt and government debt is nonsensical.

First the limit is from an older law that says there’s a limit, there’s some debate over whether or not it’s actually legally valid but no one wants to bring it to the courts to find out in case they decide it is. Either way, it’s completely arbitrary and up to congress.

Second, US debt is borrowed and repaid in the form of bonds. They last a certain amount of time and then you get paid some percentage for having them. We always pay those off, from revenues or more debt. How much can fluctuate, but there’s no real hard numbers that are good or bad, that depends on the next part:

Government debt can also be thought of as national investment. We borrow money to pay for stuff, that stuff in turn contributes to the growth of our economy, more like a business loan than credit card debt. If we spend on things that grow our economy more than the interest, payout, it’s a good investment, if it grows less than that, it’s a bad one. As long as good investments outweigh the bad ones, the debt is worth having.