How did we end up in the current debt limit crisis?

Ordinarily, raising the debt ceiling is a pretty routine matter. Congress votes to raise it on average about once a year. There's a little bit of belly aching from the opposition party but they always go ahead and raise it. This year for the first time the Republican party has attached a list of demands to the debt ceiling increase and the negotiations for how to raise the debt ceiling have come right down to the wire. So we're in this crisis because one party has used it as leverage to get policy concessions.

Why must Congress raise the debt limit?

As strange as it sounds, increasing the debt limit does not mean more debt. It actually just means being able to pay off the bills that we've already agreed to. So we have to raise the debt limit just so that we can pay off the various obligations that the federal government has: military families, our lenders, social security recipients, and veterans. They all expect to receive the benefits that they've been promised and the paychecks that they've been promised. Raising the debt ceiling will allow us to meet those obligations.

What will happen if Congress passes only a small debt limit increase, or worse, none at all?

The economic consequences of not raising the debt ceiling range from bad to catastrophic. Basically what will happen is the people who lend the federal government money will start asking for higher interest rates, and because so much of the lending that goes on in this country and around the world is tied directly to the rates that the federal government gets, higher rates for the federal government means higher rates for everybody. People buying homes, people buying cars, small businesses. But there's other consequence, too. Think of all the people who receive benefits or salaries or payments from the federal government in a specific month. Social security beneficiaries, businesses, veterans--all of their payments are at risk. So that has very large economic consequences.

Unfortunately even a short-term increase in the debt limit doesn't really solve that problem because we'll be right back here in the same situation six months from now. So we really need a longer-term increase in the debt limit.