Everyone is saying it will be Armageddon if the US doesn’t raise the debt ceiling, because then it will be unable to pay its creditors for some time, which will raise the future cost of borrowing, and then have a giant ripple effect throughout the rest of the economy.
But here’s what I don’t understand. Isn’t the fact that we are *approaching* the debt ceiling already an indication to creditors that “Hey, we can’t pay the debt without borrowing more money.” Yet we’re fine.
Doesn’t that distress signal already basically indicate that we can’t really pay the debt? It would be like asserting “It’ll really damage your credit score if you miss a payment” to somebody… who has paid their last 3 years of payments *with other credit cards.* Shouldn’t their credit *already* be shot at that point?
Why do the people lending the government money see the government any differently? Why is our credit considered excellent when we pay off our creditors with other creditors money?
In: Economics
> Isn’t the fact that we are approaching the debt ceiling already an indication to creditors that “Hey, we can’t pay the debt without borrowing more money.”
The problem with the US hitting the debt ceiling isn’t the signal that it sends. Being “unable to pays its creditors” isn’t a metaphor or an indication that something might happen in the future – it literally means public servants don’t get paid. This doesn’t happen if the debt ceiling gets raised, which is why the distinction between being below it and over it is a meaningful one.
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