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CBS: Primer on the Debt Limit Fight

Author: Brian Montopoli
July 13, 2011

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The battle over a deal to raise the debt ceiling has not been easy to follow: It centers on an unfamiliar concept, the parameters seem to change nearly every day, and both sides are feverishly spinning the closed-door negotiations to make the other look as unreasonable as possible.

So we thought it was a good time to step back and explain exactly what is at stake, where both sides are coming from and where the debate will go from here. Check it out below. 

 What's the debt limit, anyway?: The idea that there is a legal limit on how much money the government can borrow may seem strange: After all, there is no limit on how much debt you can put on your credit card, so long as you can get someone to loan you the cash. And no other advanced economy has such an arbitrary limit, which White House economic adviser Austan Goolsbee has called a "weird construct."

Here's why it exists: Until 1917, Congress had to pass a new law every time the government wanted to borrow money. But with America needing to finance its involvement in World War I, lawmakers passed a law to give the Treasury Department leeway to borrow on its own - so long as it didn't exceed a certain amount. That's the debt limit, or debt ceiling - the amount that Treasury can borrow without going back to Congress for permission. Since America has made a habit of spending more money than it takes in, that limit has continually needed to be raised.

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