In his news conference Tuesday afternoon, President Obama made this argument about the federal debt limit: "Because it's called raising the debt ceiling, I think a lot of Americans think it's raising our debt. It is not raising our debt. This does not add a dime to our debt."
Some of the smarter financial reporters out there pointed out that the president wasn't quite right, or at least his statement was not quite complete:
Obama says raising the debt ceiling is not the same as "raising our debt." Technically correct, though it allows the debt to increase.
— Damian Paletta (@damianpaletta) October 8, 2013
Also, of course raising the debt ceiling increases our debt. Which is necessary to pay our obligations. But of course it increases our debt.
— Binyamin Appelbaum (@BCAppelbaum) October 8, 2013
What's going on here? Is the president being misleading and disingenuous? Or are the reporters being overly picky with language? Here's one way to make sense of it.
Over the years, Congress has passed a series of laws that set tax rules and spending policies. When the amount the government spends under those laws is higher than the amount of taxes the government brings in, it has to borrow money to fund the difference. The accumulated past deficits add up to the total debt. But there's another law that puts a legal cap on the amount of debt the U.S. Treasury can issue. So even though the debt is just a residual of all those past tax and spending decisions, it has to be passed as well.
We're generally reluctant to use households as a metaphor here at Wonkblog (read Brad Plumer on why households are really nothing like the U.S. government), so I'll fudge it and use the best metaphor I can think of for the current predicament. The U.S. government is like a family. The family has signed a lease on a rental home that commits it to pay monthly rent over the next year. Family members have also accepted jobs that pay a set salary.
It turns out that the monthly rent is higher than the salaries, so the family needs to borrow money to make up the difference -- adding to their debt. But the husband and wife must also agree jointly to increase their credit line at their bank to be able to borrow the amount they need. The wife, however, flat-out refuses to do that unless she gets her way on changing the couple's health plan.
The husband thinks that's wildly unfair. If they don't borrow more money, they will not be meeting their obligation to pay their rent, and will be evicted from their house! That's a big threat the wife is holding over the husband's head. It's true that the couple would avoid taking on extra debt, in a narrow sense, by not raising their credit limit. But just because paying the rent they owe doesn't technically count as debt doesn't mean they aren't obligated to pay -- and the consequences of not paying it can be as severe or even more severe than defaulting on debt owed to a bank (this consequence is eviction, as opposed to bankruptcy).
Back to the president's comment: Raising the debt ceiling doesn't increase the debt.
But raising the debt limit does allow the national debt to be increased, as Paletta notes. At the same time, to suggest that the government should pay its obligations on Treasury bonds while letting other obligations fall by the wayside would still mean that the federal government wasn’t paying the bills it had promised to honor (even if bondholders were taken care of).
It would the equivalent of the couple making some of its payments, like the electric bill, while no longer paying the rent. It doesn’t actually solve anything and would cause a catastrophe (eviction) along the way.