The current debt ceiling is set at $14.294 trillion, and according to CNN Money we are days away from reaching it. Treasury Secretary Tim Geithner estimates he and his team can keep the US out of default until early August.
I appreciate the increased attention on the US nation debt. My concern is the the US is beginning to flirt with danger: increasing risk of a debt crisis. US debt is a fair ways removed from the debt crises of the PIIGS (Portugal, Italy, Ireland, Greece, and Spain). However, the current trend of debt as a percentage of GDP is ominous.
A US debt crisis would look a bit different from that of the PIIGS because the US is not bound to a multi-country currency like the Euro. Devaluation of the USD is likely to be a component of (or reaction to) a US debt crisis. So are austerity and tax increases.
The danger is that buyers of US debt will demand higher and higher interests rates to compensate them for taking on three key risks, inflation, devaluation, and default. As debt increases so do these risks. As the US refinances debt for expiring Treasurys it does do at greater and greater costs. As the government raises taxes to combat debt (and pay higher borrowing costs) the US economy is increasingly depressed and tax raises do not result in nearly as much federal revenue as hoped. Eventually only austerity and devaluation (via the printing press and increases in money supply).
The way I see it, playing brinksmanship now with the debt ceiling in an effort to but the brakes on the US deficit is a reasonable risk. The current trajectory of the US debt is unsustainable and reckless. With US debt 90% of GDP and closing in fast on 100%, we are in jeopardy. This number puts the US next to the troubled Ireland and not far from Italy as shown in this table.
It is time for Congress to get its fiscal act together. Time is rather short. I hope we can start making some sort of progress.