If the comments to Doug Mataconis’s post at OTB on the possibility of a reduction in the U. S. credit rating are any gauge, there’s a considerable amount of confusion about the difference between the debt ceiling and debt-worthiness. Think of it this way. Let’s say you’ve got a drinking problem. You decide to limit yourself to just one beer. Does that change the likelihood that you’ll drink until you pass out? Frankly, I doubt it. It’s a self-imposed limit. After that one beer you’ll want another. And another.
If you were serious, you’d cut yourself off completely.
The debt ceiling is the resolution to limit ourselves and borrowing is the beer.
Since we obviously don’t have the resolve to avoid borrowing, failing to raise the debt ceiling would do us considerable damage—we wouldn’t be able to pay our bills—but raising the debt ceiling does not solve our fiscal problems. The only way we can do that is to strike a more prudent balance among public spending, public borrowing, public revenue, and the national income.
Right now the federal public debt is inching dangerously close to 100% of GDP and towards a third of world GDP. Investors are right to wonder whether we’re using too much credit.
The original story that Doug linked to is here